The Commodity Dollars Signal

The market seems to be turning higher for the commodity dollars (comm dolls), which is inline with the recent price action in commodities. Commodities, like copper, oil, and gold, have been generally rangebound in 2017 following the significant downtrends that started in 2011. During that downtrend in commodities, markets have been operating on loose monetary policy based on the flow of funds from central bank balance sheets and ultra-low interest rates. Now these fundamentals are shifting with balance sheet reductions, interest rate hikes and increasing hawkish central bank sentiment around the globe. With the fundamentals transitioning from one psychological paradigm to another one, increased volatility and choppy price action may start to creep back into the markets.

GBPCAD 4 HOUR CHART

There have been no summer doldrums in the forex markets. Starting with the Canadian dollar, the Bank of Canada (BoC) completely surprised markets last month with an interest rate hike. The start of monetary tightening in Canada now gives the CAD fundamental support for the rally that has taken place for much of this year already. So the correction this week just ahead of the Bank of England (BoE) interest rate announcement this Thursday, was a fantastic opportunity to buy Canadian dollars versus the Great British pound. The corrective rally moved right into the 61.8% Fibonacci level giving a level of risk reward that worked well for sellers ahead of the UK Super Thursday news event. The BoE was more dovish than the market expected as it cut its inflation and economic growth forecasts amongst calls for gradual rate increases. This divergence in monetary policy between Canada and Great Britain may see the $GBPCAD move to new lows.

GBPAUD 4 HOUR CHART

The Reserve Bank of Australia (RBA) released their monetary policy statement this week too. While the RBA is hawkish on the Australian economy, they remain adamant that accommodative monetary policy must remain for that growth to continue. As such, the RBA will likely not move on interest rates at all this year. But neither will the BoE. If this remains the case, the interest rate differential and the divergence in economies should continue to underpin the Australian dollar against the Great British pound.

GBPNZD 4 HOUR CHART

The $GBPNZD was trading in a wide range while we saw the aforementioned breakdowns in the $GBPCAD and $GBPAUD. The $GBPNZD finally joined suit and fell to new lows at the 1.7400 support level. But the $GBPNZD staged a major correction this week that actually saw price move back to the top of the former trading range above the 1.7900 level just before the BoE announcement. While this complete reversal higher seems like bullish price action, hindsight reveals another fantastic sell opportunity post BoE.

So now that the selling opportunities have presented themselves, can the commodity dollars continue to strengthen against the pound? There is another factor at play here that we have not yet touched upon – the weakening U.S. dollar. A weak dollar boosts most commodities since they are priced in U.S. dollars. Higher commodity prices should bolster the commodity dollars higher as well. But this is no guarantee. So take care with your trades. It’s going to be a choppy month with the occasional bursts of volatility as markets ready for full throttle trading come September. Be patient and take advantage of the setups, like these, when they come.

The Youth vs. The Market

Now that the markets have opened after the week that ended in a hung parliament, I, a mere trader, can now make exclaim,

Theresa May made the biggest mistake of her short tenure as prime minister. FULL STOP.

She completely discounted the voice and vote of the youth. Since the June 23rd referendum vote, it was clear that young British voters in no way approved of a Brexit. But they didn’t vote. Or so it was reported. In my mind, as a disgusted Democratic sitting in California, why would the Prime Minister ever give the citizenry an election so soon after she stepped into office? Americans are waiting excruciatingly for the 2018 midterm elections. Can you imagine trump ever declaring a snap election to prove a point? We could only hope. But I digress. Back to Great Britain. As the market rallied in anticipation of the election, I thought it was market cheer for a new change in Parliament. Surely, folks would oust the party that campaigned for and got their Brexit. The youth were not going to make this mistake twice.

And that’s exactly what they did. The Party of Brexit lost its majority hold. And the voters gave that majority to NO ONE. Fucking brilliant. If Prime Minister May was truly engaged with the public, she would’ve never declared that snap election. She counted on increased apathy to secure a mandate for Brexit. And as such, her party not only lost their Parliamentary majority, nobody won the majority. And the hung parliament just completely changed the fundamental landscape for the Great British pound.

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ON AIR with #FuturesRadio

This week, I was honored to be back on Futures Radio. It’s always an amazing feeling to know your work is respected beyond the forex sphere. Futures are a special instrument with the element of time added to the mix. However, Anthony Crudele, the show host and creator, is big technical trader. So he started a new series on Futures Radio talking with different traders about how they use technical analysis in their trading. Mine is Episode 2. Enjoy ☺️

You can listen to my first episode on Futures Radio.
Premium trade setups with targets and stops are available for traders looking for specific direction with trading the GBP.

Quid Report from Written Word to Spoken Word

HAPPY NEW YEAR TRADERS!!

2017 is here and we are back in the saddle! In an attempt to deliver better value to you, I am switching the format of the Quid Report. I will no longer deliver the 20-page written report once every week. Instead! I will deliver a live broadcast THREE times every week.

The video format will allow me to deliver insights and calls on the GBP pairs as the market opens on Sunday/early Monday instead of waiting until after the New York close on Monday. So you all will be able to get ahead of those moves and see what I see as I was writing the report.

Broadcasting videos will also allow me to better interact with you and answer questions right then as we are all looking at the same charts. Lastly, the videos will allow me to deliver these insights in a timely fashion which was starting to become a big problem.

I hope this change in delivery format is well received. Please continue to give me feedback as you always do!

Cheers to happy trades in 2017!

HAPPY NEW YEAR 2017

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Don’t be Pound Foolish

The new trading week has been very busy out of the UK this week. Inflation may be heating up in both regular pay wages and consumer prices. Perhaps the accelerated weakness in the Great British pound may start to feed inflation as the increasing price of imports may be passed on to consumers. Additionally, the low exchange rate may also forces companies to raise wages to keep up with this rising price of goods and services. The PMI numbers that had trended below the 50.0-threshold level earlier in the year have started to recover. The October releases revealed robust PMI numbers in all sectors of the economy. It will be interesting if this recovery in the PMI numbers this month will persist. If so, building strength may allow the Great British pound downtrend to finally correct in the short-term. Any strength in sterling, however, is expected to be temporary.

After weeks of decline and new, multi-year lows, the Great British pound has staged a correction. Depending on your chart, it has been impressive and not so impressive all at the same time. But it has been a correction nonetheless. And it has allowed swing traders to reset short positions as currency pairs like the $GBPNZD and $GBPUSD trade at essentially all-time, low levels.

GBPNZD DAILY CHART

This Friday close is the third consecutive weekly close below the major 1.7702-support level. This is the first time there have been consecutive bearish closes below the 1.7702-level on any timeframe (Volume 79). However, with building bullish momentum on the RSI of the daily chart, the $GBPNZD may stage a correction off the lows. The failed low of last week also signals a bullish move higher.

The highs this week have not been able to get quite as high at the Fibonacci levels. And that failure is actually evidence of the strong bear trend in the $GBPNZD.

GBPUSD DAILY CHART

The $GBPUSD currently trades at levels not seen since 1985. As such, there is very little technical support at these price levels. However, the $GBPUSD has started to forge out minor support at the 1.2160, 1.2154 and 1.2132 levels. This support zone seems to have stalled selling in cable for the time being. Without a close below the 1.2000-psychological level, the $GBPUSD begins to build bullish sentiment in the very short-term.

Cable has been coiling between the 1.2350 and 1.2100 levels since the flash crash. While the defense of those 1.2089 lows this week emboldened bulls, it has not been enough to spark a rally to the psychological level at 1.2500. This failure keeps the $GBPUSD bearish despite the rally off the new lows this week.

All in all, sellers continue to show up at the highs. The rally has totally underwhelmed. Only against the JPY has the correction moved as high as expected. While there could be an argument that Brexit woes and implications are already priced into the market, price action seems to indicate otherwise. With these currency pairs trading at these low levels, the GBP has the certain potential to move lower still…until it doesn’t. Be careful out there. Don’t chase the price action!

All quotes and charts taken from this week’s Quid Report, Volume 82. Full report has trade setups and includes more currency pairs.

I Survived the Flash Crash

The GBP just crashed in epic proportions. The official number is -5% in 2 minutes and 3 seconds.

GBPUSD 15 MINUTE CHART

It is already being called a flash crash because of the sheer scale of it. And the craziest thing about it is that we were on the right side of it. The following quote is from this week’s Quid Report (Volume 79):

The follow-through lower already this week proves correct the assertion in Volume 76 – that the resumption of the long-term downtrend that is the Great British pound has indeed taken place…It is very likely that this bear trend is the direction sterling trades for the remainder of the calendar year.

The rest of the report this week goes on to outline the setups that took place at the beginning of this week. Most of the targets had been hit before the flash crash except for two trades. These positions are up HUGE.  I haven’t seen this much money on a single trade in a long time.

I SURVIVED THE FLASH CRASH….

So I immediately issued a tweet to all Quid Report readers. This is not verbatim but it was definitely to this effect:

keep calm and carry on

If you were short the GBP ahead of this flash crash – GOOD FOR YOU! KUDOS! How you manage this trade is up to you. But no one will blame you if you close out these positions for all this big money. Taking big profits is the name of the game!

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The Year of the Dragon

Is She Baaaa-ack?

The new trading week is packed with market-moving economic releases out of the UK. Inflation, the UK jobs report and retail sales are all released ahead of the event risk of the week. The event risk of the week for the Great British pound is the BoE interest rate announcement. All of these releases will give a better picture of the British economy in the aftermath of the Brexit shock. It is very likely that these releases are more robust than the market expects. If so, the BoE will not have a reason to move on monetary policy this week causing the Great British pound to rally further. More sterling strength will allow the pound currency pairs to finish consolidation just as the summer doldrums have officially come to an end.

How shall we trade the GBP this week?

Well, we came into the week with a ton of GBP strength.

EURGBP 4 HOUR CHART GBPAUD 4 HOUR CHART GBPNZD 4 HOUR CHART

With CPI and regular wages both weaker than expected, inflation is not raging at all in the British economy.

Great Britain average earnings annual growth rates, seasonally adjusted
Great Britain average earnings annual growth rates, seasonally adjusted. Source: UK ONS

The lack of inflation in wages, though still relatively high, will keep the BoE away from any tightening measures. Coupled with weak consumer prices, the BoE may signal a further loosening monetary policy this week. As such, the GBP strength that started the week is starting to fizzle as we get closer to the actual Bank of England announcement this week. The Friday close will be significant for direction sterling into the end of the year. The summer is officially over. Volatility and traders are back and with them a clear trend is likely to emerge.

Australian Dollar On Fleek

The Australian dollar continues to rip higher with little regard for the Reserve Bank of Australia dovish sentiment. Though the RBA has cut interest rates and will likely cut again in 2017, the market is not blind to the fact that the Australian economy continues to remain robust. The RBA is bullish on the economy too. Australia survived the crash in commodity prices. Now that they are recovering, the GBP/AUD remains biased lower for a continuation of the large Fibonacci move (see Quid Report, Volume 58). The inability of the GBP/AUD to close above the 1.7500-level also signaled bearish price action. While the GBP/AUD now has the room to move lower on a continuation of the bear trend, the bullish divergence remains on the weekly chart. The bullish divergence signaled the rally higher back above the 1.7000-level. The rally this week saw the $GBPAUD move back to the top of the channel.

GBPAUD 1 HOUR CHART

The event risk of the week for the Australian dollar was the RBA interest rate announcement. The RBA did not move on interest rates this week after surprisingly cutting interest rates in August. The $GBPAUD moved slightly higher on Australian dollar weakness after the announcement with no new highs printed. If the lower highs lead to a break of the 61.8% Fibonacci level on the 1-hour chart, this break lower signals a reversal back to the long-term lows at 1.6720. The interim target for sellers, however, is the lows at 1.7208. Only a move back above the trendline invalidate the current bearish bias.

Euro Finally Breaks Under Weight of ECB

Despite breaking to new highs now at 0.8724, momentum is still unable to match the new highs in price with new highs on the RSI. The $EURGBP moved lower off the highs last week but found support at the 50% Fibonacci level at 0.8486. With price moving lower off the new highs, the $EURGBP is biased to move lower as the new trading week gets underway. Despite the close above the key 0.8500-psychological level, the $EURGBP remains biased to the downside to start the new trading week. If the $EURGBP is unable to move above the 0.8600-resistance level, then it can be expected to move to new lows. A Friday close below the 0.8500-support level may invalidate the current bullish bias in the short-term and supports a deeper correction of the summer rally.

EURGBP WEEKLY CHART

The European Central Bank (ECB) Governor Mario Draghi has made it clear that the path for future monetary policy action is further easing and accommodation. This dovish bias includes cutting interest rates again, as soon as September. However, contrary to these euro fundamentals, markets continue to buy euro. It is likely that September will be no different. In fact, the euro may accelerate its rally higher if the ECB fails to deliver this highly anticipated move to further accommodate monetary policy. The economic calendar is very busy out of the Eurozone this week. A slew of PMI data from the core European economies are due for release this week. The event risk of the week for the euro is the release of the German jobs data. As the strongest economy in the Eurozone, a weak jobs report may accelerate $EURGBP weakness.

EURGBP 4 HOUR CHART

OUTLOOK FOR THE WEEK: After breaking back below the channel last week, the $EURGBP has been unable to move higher. The trendline of the channel has acted as resistance capping the rally out of the Fibonacci buy zone on the weekly chart. Sellers step in on rallies back to the trendline… [subscribe]