CHART OF THE WEEK: USD BULLS RETURN

Each week, I highlight a chart out of the Quid Report.

While the timing still may be unknown, the Federal Reserve remains on track to raise interest rates this year. This makes the $FED the most hawkish central bank in the world. Despite the recent bout of weakness, the USD should rise due to the contrast in monetary policy between the Federal Reserve and the rest of the world. The reason that USD weakness may persist is that the U.S. economy is not strong enough to justify aggressive monetary tightening. While the $FED may be considering a schedule of interest rate hikes, it cannot commit to it with the U.S. economy still so fragile. So even if the $FED surprises markets with an interest rate hike in June, it is unlikely it will spark a change in trend. While there will be a knee jerk reaction when the $FED raises interest rates, the USD could continue to weaken if markets price in a delay in subsequent interest rate hikes for as long as the U.S. economy remains soft.


GBPUSD WEEKLY CHART


This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time calls and adjustments to the weekly report. AVAILABLE NOW.

A Failing Euro

The $EURGBP completed its Fibonacci move from the highs at 0.7482 with the new low below 0.7128. While it didn’t appear to be the top at the time, the euro became mired in Greek financial drama last week. The smoke-and-mirrors of Greek repayment is once again wearing thin on the markets. The euro had been rallying higher as Greece communicated ability to repay its debts. Then last week, the European Central Bank (ECB) meeting minutes confirmed the ECB’s satisfaction with its quantitative easing (QE) program and its intended effect on financial markets. The euro collapsed as markets were reminded that QE continues in full form out of the ECB.

EURGBP WEEKLY CHART ON SUNDAY

While the $EURGBP may have completed a Fibonacci move on the daily chart, the Fibonacci move on the weekly chart still has yet to be completed. The 0.7100 support level is a formidable support level. It became the level against which bids stepped into the market to ignite the latest rally to 0.7482. While price last week did break below the 0.7100 support level, the trading week closed above it. With price already below the support level to start the new trading week, there are a slew of former lows to contend with as the $EURGBP looks to complete price action to the major support level at 0.7000.


This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time updates to the weekly report. AVAILABLE NOW.

Euro Sighs in Relief

The $EURGBP staged a monster breakout last week. We cited last week that the $EURGBP had the potential to rally if Greece received a bailout. No bailout came but the buyers still stepped out to buy the euro. One reason is just simple profit taking. At the end of the month, traders squared positions after the euro’s break of multi-year support levels. Another reason is the approach of summer trading. Trading desks are getting ready for the thinner summer market environment. So taking profits off the table and squaring up positions for summer trading may account for a large part of these EUR strength flows.

The $EURGBP had been previously range bound. It broke that range to the upside and broke above 0.7250 right away. It quickly confirmed the breakout on a 4-hr chart close above 0.7250. The $EURGBP immediately rallied 166 pips higher to 0.7416. Offers lined up at the highs with profit-takers and sellers. The $EURGBP is in a terrific downtrend after all. The Greek crisis makes it hard to buy euros for the long term so taking profits at the 38.2% Fibonacci level seems very prudent. But as news of a nearing bailout deal that will please everybody is starting to develop, the euro finds itself in a relief rally. The timing of the rally with election jitters underscores the upside move potential in the $EURGBP. The volatility that is supposed to occur around a change in Parliament has dissipated since hitting markets 2 weeks ago. Perhaps now, the week of the election, market volatility will return that can send the $EURGBP higher still.

EURGBP DAILY CHART

If price breaks above last week’s high, it will go to the 0.7500 psychological level. A break higher targets the 50% Fibonacci level at 0.7568. But if price were to move lower in the new trading week, watch the 1st set of Fibonacci levels on the 4-hour chart. These levels mark a correction of the breakout rally of last week. The 38.2% Fibonacci level at 0.7373 should be a place where late buyers will look to enter the rally. Buyers who held from last week know this is also an opportune time to add to long positions. A move lower still targets the Fibonacci levels on the daily chart. These Fibonacci levels are over the entire rally off the 0.7016 lows.


This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time calls and adjustments to the weekly report. AVAILABLE NOW.