USD Leaves Markets In Suspense

This is our look at cable ahead of the FOMC meeting:

As price met resistance in the zone between the 1.4750 and 1.4800 levels, momentum exhausted in like fashion to move into bearish territory. The U.S. dollar looks to accelerate weakness after another disappointing non-farm payrolls report was released last week. This weak jobs report should have been evident in the midst of all the weak U.S. economic data that had been released prior, namely the weak GDP number, the weak retail sales, the weak manufacturing numbers and the weak inflation numbers. The weight of evidence points to a weaker U.S. economy. Many market participants would begin to think that all of the weak economic data out of the U.S. would now start to weaken the U.S. dollar more substantially. If markets begin to sell the U.S. dollar en masse, the $GBPUSD will move back towards the 1.4769 highs for a break higher to the major 1.5000-psychological level. However, this will not be the scenario that plays out. The market will begin buying U.S. dollars in anticipation of an interest rate hike by the Federal Reserve later this year. The Friday close below the 1.4350-support level signals a move to the bottom of the range at 1.4000.

GBPUSD DAILY CHART

The event risk of the week for the U.S. dollar is the Federal Reserve monetary policy announcement. In response to the disappointing U.S. jobs reports, markets have already discounted this month’s Federal Reserve monetary policy meeting as a non-event. Rather, markets have begun to price in an interest rate hike at the July meeting. Market participants will, therefore, be keen to hear hints about a rate hike taking place either as soon as July or delayed further until December. Hawkish hints will trigger more dollar buying flows.

Premium trade setups with targets and stops are published in the GBP/USD Outlook for the Week in Volume 66, this week’s Quid Report.

ECB Keeps Euro Happy

This was our look at the EUR/GBP at the beginning of the week, ahead of the ECB:

The recent consolidation in the EUR/GBP was signaled by the bearish divergence at the highs. Now, the end of this move lower is being signaled by a bullish divergence at the lows on the RSI of the daily chart. The EUR/GBP starts the new trading week bouncing along the bottom of the buy zone. Buyers continue to keep price bid as momentum builds despite being in bearish territory. Though not a true bullish divergence because price is not at new lows on the daily chart, it is noted that momentum is no longer making new lows despite the new lows to 0.7564. This may be a nascent signal of bullish price action in this new trading week. Furthermore, after the move to 0.7564, the subsequent higher lows coinciding with building momentum on the RSI give the EUR/GBP a bullish bias. Despite the recently bearish price action, the EUR/GBP targets a move to the upside in the new trading week. A continuation of the rally is confirmed on a close above the key 0.7700 level.

EURGBP DAILY CHART

Premium trade setups with targets and stops are published in the EUR/GBP Outlook for the Week in Volume 64, this week’s Quid Report.

NEW: The Monday Morning Call

If you haven’t already noticed, Mondays are silent as the Quid Report is finalized for release later that day after the close. But the market doesn’t care what any of us have going on. And, very rarely does it develop in a way that could set off the entire week.

Sterling can move right at the beginning of the week when the forex market first opens. Big moves can happen at the Sunday/Monday open. Most times, though, sterling will retrace its market open move and trade right back to those opening levels you thought you missed. This often allows late and patient traders the opportunity to set up at those great price levels. So NEVER feel like you missed a trade on Monday.

But sometimes, there are opportunities that truly set up in the Monday session. The moves just keep going and going and you wish you got in at the Monday open. When sterling has the potential to move like that, I want you to know about it. My followers get these Monday morning calls.

Premium trade setups with targets and stops are published later in this week’s Quid Report.

Cheers to another week of life, peace, kindness and markets!

 

Cable is Breaking but Not Really

GBPUSD DAILY CHART

The U.S. dollar remains in consolidation after the past year’s rally. Now that the Federal Reserve has actually taken hawkish action, there is a possibility that the U.S. dollar weakens even in the face of a hawkish Federal Reserve. Therefore, the $GBPUSD remains bullish for as long as price remains above the 1.4000-level. However, as the $GBPUSD has attempted to move higher, price currently finds strong resistance at the 1.4500-level. While holding below the 1.4500-support level is actually a bearish signal for future price action, price has been unable to gain traction in either direction. The $GBPUSD has actually become rangebound between the 1.4500-resistance level and the 1.4000/50-support levels. As price action coils in this range, the $GBPUSD has actually found resistance within the greater range at the 1.4350-level. As the new trading week gets underway, there is no action to take whatsoever while the $GBPUSD trades within the range. Prudent traders wait for price to move to the range extremes before setting into action.

Premium trade setups with targets and stops are published in the GBP/USD Outlook for the Week in Volume 59, this week’s Quid Report.

Remember, The Euro Is a Safe Haven

EURGBP WEEKLY CHART
The $EURGBP has made new highs to 0.8117 after a four-month rally. Though this month could mark a fifth month, the rally might have finally reached a point of exhaustion. There is a very similar example of price action during the very beginnings of the financial crisis in 2007. A sharp move to the upside found resistance at 0.8100 and corrected as low as the 0.7700-support level. The next six months were spent rangebound in the zone between 0.7940 and 0.7860. This support zone also held up price action in 2014. During its descent in 2014, the $EURGBP loosely found support between the 0.7940 level and the 0.7860 level. Day-to-day price action was very choppy at that time too. There is good reason to believe this trend may see the start of consolidation last week. That might have been the end of consolidation too. Price has managed to find support at the 0.7940-support level, which is also the top of the support zone. While the move to new highs broke above the 0.8100-resistance level, the $EURGBP has already consolidated 38.2% of the last bullish wave of the rally. As a Fibonacci move on the $EURGBP, this is very bullish price action and signals a resumption of the rally in the new trading week.

Premium trade setups with targets and stops are published in the EUR/GBP Outlook for the Week in Volume 59, this week’s Quid Report.

Carry Is An Aussie’s Best Friend

The GBP/AUD found resistance at the 2.0650 highs as sellers stepped in at the upper trendline of the channel two weeks ago. Resistance at the top of the channel continues to confirm the bearish hold below the key 2.1200 level. The GBP/AUD maintains its bearish bias to start this new trading week. Rallies will be met with sellers. When the GBP/AUD did not complete its move to the bottom of the channel, price found support at the major 2.000 support and psychological level and returned to the top of the channel. Resistance at the top of the channel continues to hold and cap rallies. As such, sellers last week were well positioned for a move back to the bottom of the channel below the 2.0000 support level. However, it remains to be seen if the lower trendline continues to hold as support. The interest rate differential is still relatively great compared to the other major currencies with the exception of the New Zealand dollar. The carry trade may be reason enough for the GBP/AUD selloff to continue, especially given the divergence in monetary policy between the BoE and the Reserve Bank of Australia (RBA). The BoE has turned dovish while the RBA remains neutral. The RBA has an increasing concern for rising inflation induced by last year’s weak Australian dollar. The lack of new monetary policy action from both central banks keeps the GBP/AUD in the channel.

GBPAUD 4 HOUR CHART
GBP/AUD breaks the channel bottom as price plunges after the gap down. No big deal. We’ve seen this before.

When the $GBPAUD found resistance at the channel bottom after breaking below it, that was the first time in 6 months price has ever behaved this way outside of the channel.

Premium trade setups with targets and stops are published in the GBP/AUD Outlook in Volume 51, this week’s Quid Report.

Welcome the Strong Euro

This time last year, the euro was selling off as the European Central Bank (ECB) made no change to monetary policy in the midst of the Greek banking and debt crisis. Twelve months later in December, the ECB finally eased monetary policy and cut the deposit rate. Since then, interest rates in the Eurozone have steadily drifted further into negative territory. But the EUR/GBP has since bottomed with a tremendous rally that finally broke above the major 0.7500 resistance level. However, with the ECB signaling a lower path for interest rates, the EUR/GBP is consolidating through price with a bearish divergence in momentum. After reaching the 0.7897 highs, price fell back to the former 0.7755 highs. During consolidation, the EUR/GBP found support at the 50% Fibonacci level, which enjoys confluence with the 0.7700 support level.

EURGBP FOUR HOUR CHART

Another Friday close below the 0.7755 highs confirms the exhaustion evident for a couple weeks now in the $EURGBP rally. With a light calendar next week, this leaves the EUR/GBP at the whim of the chart technicals. A break below 0.7700 sees a move back to former lows. Otherwise, a breakout higher now targets the 0.7897 highs.

Premium trade setups with targets and stops are published in the EUR/GBP Outlook in Volume 50, this week’s Quid Report.

Dollar Has Decision To Make

The hold below the former 2015 lows on this break to new lows does remain a bearish development. After the release of the strong U.S. non-farm payrolls report in February, $GBPUSD weakness should have accelerated on the back of the strong U.S. dollar. However, the $GBPUSD has failed to move lower in this Fibonacci move that targets new lows below the 1.4079 low. Failed lows signal a rally in the $GBPUSD that takes price above the 1.4667 highs. A confirmed close above the 1.4600 level invalidates the bearish outlook.

GBPUSD WEEKLY CHART

The threat of inflation should keep the Federal Reserve hawkish with tighter monetary policy. With inflation data ticking higher in the U.S. and the labor market still quite robust, the $GBPUSD could make another push toward the lows. But without new lows, bears will come under pressure.

Premium trade setups with targets and stops are published in the GBP/USD Outlook in Volume 50, this week’s Quid Report.

Canadian Dollar Looks for the Rally

The Canadian dollar is starting to decouple from the crude oil markets. As crude oil markets plunge, the Canadian dollar also moves lower but not particularly against the pound sterling. The $GBPCAD reached multi-year highs just below the 2.1000 major resistance and psychological level twice in 2015. But despite crude oil prices crashing lower in 2016, the $GBPCAD has been unable to break above the 2.1000 level to new multi-year highs. The oil glut that caused the oil markets to accelerate its decline in the past seven months continues to persist. There is an oversupply of oil in the markets. Oil producers remain in denial to decreased demand for fossil fuels and refuse to cut production. Or perhaps some oil-producing nations are conducting economic warfare as they continue to pump oil. Regardless of the reason, this supply glut will keep crude oil prices low in 2016. Oil markets open the new trading week moving lower still even after the multi-year low Friday close. The crude oil markets continue to lead all commodity markets lower as the new trading week gets underway. However, while last week we believed that any strength in oil would present a buying opportunity in the $GBPCAD (Volume 45), this week that perspective has changed. Any rally in the $GBPCAD this week will be seen as a selling opportunity. Only a close above the 2.1000 resistance level will keep the bullish trend intact.

GBPCAD 4 HOUR CHART

With the weak pound sterling, it is difficult for the $GBPCAD to rally even with the weak oil market. The moves have become biased to the downside this week as price continues to print lower highs and decreasing bullish momentum. Signaled by the Friday close, the new trading week opens with sellers stepping in at the gap-open highs. As price moves higher, the 2.1000 resistance level will be the signal for future price action. A confirmed close above the 2.1000 level will allow buyers to gain position and base for a move higher. However, if price rallies again and holds below the 2.1000 resistance level, the $GBPCAD will move to the 61.8% Fibonacci level on the daily chart. A rally in price back to the highs will be an opportunity for buyers to cover long positions. The failed high at 2.0949 continues to signal a deeper correction to the 1.9800 support level.

Premium trade setups with targets and stops are published in the GBP/CAD Outlook for the Week in Volume 46, this week’s Quid Report. This is an excerpt from Quid Report.

Euro Exuberance

This week, the $EURGBP broke above the 0.7500 resistance level for the first in 12 months. Given the context of the break lower back in January last year, the break higher this week holds real implications for price action in 2016. In the face of QE and rate cuts, the euro has rallied over 500 pips. This is a complete break from its fundamentals. Or is it?

EURGBP daily chart

Premium trade setups with targets and stops are published in the EUR/GBP Outlook for the Week in Volume 45, this week’s Quid Report.