Majors Meltdown

Ivaylo Ivanov of SocialLeverage50 tweeted this sweet currency chart this morning before the US open. With 1 more day until it ends, it pretty much sums up the entire 3rd quarter of 2014.

stocktwits chart posted by ivanhoff
Everything at their chart extreme except for pound

Which surprised you the most? Sterling has been pretty resilient to the USD strength as it found favor in the face of a majors meltdown. The currencies of the G10 all melted this quarter and all to pretty significant support levels. Except for the pound sterling. Even the mega rally in the USD is at a significant resistance level. Is GBP a laggard? Or the exception? A signal of future strength in the currency? Or future weakness?

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The Aftermath of NO Vote

So the United Kingdom has avoided divorce and remains united after all as the Scots voted against independence last Thursday. The market has responded with massive sterling strength across the board. In fact, we have breakouts in the $GBPJPY, the $EURGBP, and the $GBPNZD as the weakness in the cross currency serves to exacerbate these rallies.

The $GBPUSD, however, may not rally like its cross pairs. This relief rally in cable is still a corrective rally and will likely meet resistance at the 1.6750 resistance level. Furthermore, there is confluence at this major level as the 61.8% Fibonacci level of the entire decline also falls at this level.

GBPUSD DAILY CHART

Before the 1.6750, I’d expect offers to come in at 1.6500 and 1.6620, the 50% Fibonacci level. But it is the 1.6750 level where bulls will ultimately have to prove themselves.

Trade what you see.

The Scottish #IndyRef

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My first reaction was that market doesn’t care about my take so why would I have one. Each day, I attempt to approach the markets with humility because I don’t want to fall in love with a bias that will beholden me to a position. But if I’m really honest with myself, of course I have a take on the referendum!

I don’t think the Scots will go through with it. And if I’m right the market will flail about for a few hours, or days, and go back to trading the status quo. And the stays quo is that the economy is not as strong as it was a year ago. Wage growth, the new forward guidance, is tepid at best. No matter what Carney says, I don’t think he can convince a majority of the MPC to raise internet rates until there is more proof of inflation beyond house prices. In fact, the weakness in commodities actually buys the BoE some time as energy prices are even less of a drag on inflation than they’ve ever been before.

If the Scots prove me wrong and vote in independence, then the pound sterling will weaken fast and sharp across the board. A currency crisis will literally materialize in a matter of hours as markets deal with a sudden GBP currency union or a new Scottish currency.

So, in conclusion, my take is bearish GBP. But I know the markets can do whatever they want to do. So whatever you do with this “insight”, please do mange your risks appropriately and trade what you see.

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The Sterling Digest, 15 September 2014: ref talk

aye or die!
Manifest destiny?

Of course, the only thing still on the wire is the Scottish referendum. But the Scots stand to rock the world as secessionists everywhere get emboldened by the possibility of independence. Naturally, the referendum polls are just as emotional as the voters they reflect. Sterling spiked to new weekly lows across the board as the Yes vote took lead last weekend. Then the No vote moved ahead as the trading week unfolded and sterling surged big time right back to familiar highs in all the GBP pair majors. Headed into the actual election this week, expect price to actually weaken as buyers take profit and sellers take advantage of the recent highs. Even with the Bank of England set to make a monetary policy announcement, all eyes this week are on the referendum vote. Friday, the day after the vote, will be the most interesting trading day of the week and may set the tone for the rest of the year.

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When Uncertainty Trumps Doves

Remember this? The inverted head and shoulders pattern is messy but it is underway. As recent as last week, and certainly for the past 5, euros were sold hard to new lows. The ECB nor economic data out of the periphery EZ countries gave investors much reason to hold the currency versus the pound sterling. However, now that QE has started in the Eurozone, the certainty of that dovish cycle is everything right now to the uncertainty wreaking sterling right now.

EURGBP WEEKLY CHART

When we first looked at the reversal potential in $EURGBP, price targeted the 38.2% Fibonacci retracement level near 0.8100. However, now that the referendum polls have begun to spook markets and economic data is deteriorating, price has the potential to challenge the former weekly lows at 0.8160.

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