Taking a closer look at the $GBPUSD seasonality pattern: the pair rallies for the month of April, finds a top at the end of April, and sells off for the month of May. It’s pretty incredible the reliability of this pattern. We find it playing out perfectly in the past 3 years.

Every May since 2010, $GBPUSD has sold off hard to the tune of 500 pips or more. By the end of May, cable puts in a bottom. Conversely, every April since 2010, cable has rallied only to top out at the end of the month. This April was no different. Why should this May be any different?

So here we are in the 1st trading week of May and since topping out in April at 1.5606, $GBPUSD has put in lower highs and lower lows. The swings have been very wide and very volatile. Each new low has been met with bids that push price right back to highs. But this type of volatile price action is very characteristic of cable when it is experiencing a change in sentiment and, therefore, direction. What is important to me is that cable is carving out the very definition of a DOWN trend, lower highs and lower lows, despite the volatility.

Looking at the big picture, we see where cable was going and why on the rally. I’ve laid out that bullish scenario all April long (see below).

With sellers back in the picture, the 1st target to the downside is a massive support zone on the weekly chart. This zone sees long term support at 1.5250/30, the 50%Fibonacci level of the April rally at 1.5213, the 61.8% Fibonacci level at 1.5118, and the 1.5075 support level that buttressed the rally to 1.5600. A break below all of these levels would certainly accelerate price lower. The 50% Fibonacci correction to 1.5606 suggests that cable is looking to put in a new low below 1.4830. The seasonality trend says we could very well get there. Here’s to May!

Read Also:

• Sterling Digest, May 7 2013: April tops, May bottoms (FMFX)
• Sell In May and Go Away? (All Star Charts)
• Sterling Digest, April 30 2013: April rallies bring May selloffs (FMFX)
• Sterling Digest, April 1 2013: the quarter for sterling (FMFX)
• Can Sterling Really Rally? (FMFX)
• GBPUSD Can Still Go Higher (FMFX)
• GBPUSD Back In Play (FMFX)

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May selloffs

Cable ended April hitting the 50% Fibonacci retracement level to the PIP. Pretty impressive for a 30-day rally. As $GBPUSD tops out at 1.5606, it begins the 1st week of May with a lower high (as of this writing). Seasonality trends would have traders note that cable has topped out in April each of the last 3 years. In May 2010, cable was below 1.55 and fell to brand new long-term lows by the end of the month. $GBPUSD finds itself in a similar situation with price action only 40 pips above 1.5500. This week’s BoE rate decision will be closely watched thanks to the RBA’s long-awaited interest rate cut. Most still think the BoE holds policy until Mark Carney takes the helm so Thursday’s event could be a non-event. As such, sterling could be a mixed bag. The ECB, RBA, and BoJ are clearly dovish while the BoC and RBNZ are hawkish. The Fed is on watch but positive data continues to build the case for a strong USD. The BoE’s decision sets the tone for sterling the next 30 days. Which way will the Old Lady lean?

• Reason for hope – Bank of England deputy governor Paul Tucker (The Journal)
• George Osborne tells FPC to focus on short-term growth (Telegraph)
• Reserve Balances for UK Banks Increases by 2.3% in April to Reach New All-Time High (EcPoFi – Economics, Politics, Finance)
• Has there been a double dip recession? (Office of National Statistics)
• Cable pulled down by the euro’s vortex of suck (Forex Live) [chart]
• UK government riding the bubble (Forex Live)
• Outlooks & Strategies For EUR/USD, And GBP/USD – Barclays (eFxnews)
• Devaluing the pound won’t do what its advocates want it to do (Adam Smith Institute)

Image credit

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Could GBP’s best days be behind it?

Today is the last day of the month and sterling has enjoyed April. $GPBPUSD closed last week at 2-month highs with a rally that finally took it above 1.55 to 1.5546. $GBPAUD rallied to new highs above the 1.50 major psychological level not visited since Feburary. $GBPCAD moved to spike highs at 1.5823. Needless to say, its been a breakout month. Despite the bullish price action, sterling is still very much correcting on long-term timeframes. All the aforementioned pairs are at or around the 50% Fibonacci levels on the weekly charts. And tomorrow is May. For the last 2 years, $GBPUSD has seen a tremendous sell-off in May. Being at new highs and technical levels sets sterling up for a fall more dramatic than its rally.

• GBP recovering, CHF falling, banks rising…we connect the dots (FxBriefs)
• UK retail sales show surprise fall (The Guardian)
• GBP/USD set to extend gains..? (FxBriefs)
• Sell in May and Go Away? (All Star Charts)
• the serious change in economists’ expectations for ECB rate decision (StockTwits) [CHART]
• Fitch cuts the Old Lady to AA+ (FxBriefs)
• Equally impressive move in GBP/JPY (Forex Live)
• Forex Outlook – Action Packed Week Ahead (BK Asset Management)

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Pound Sterling

It’s the last full week of April. Then the bears come in. “Sell in May”, as they like to say. Sterling has been enjoying a nice corrective rally all month. I championed the new bullish sentiment on the blog here and here. But the bull shine could be starting to fade. $GBPUSD has many traders calling a top. Fitch downgraded the UK economy late Friday and $GBPUSD opened the week to drop to 1.5200 while $EURGBP spiked to 0.8590 highs. However, the weakness has been short-lived. Once the Monday trading session commenced, sterling found its legs rallying across the board. $GBPAUD staged a breakout in Monday trading. There are some reasons. Fitch’s downgrade is old news. Poor economic news news lately is not translating to much lower prices. With the economic calendar very light out of the UK this week, sterling could be a mixed bag to finish the month.

• Shorting GBPUSD ahead of top of range (TradingFloor.com)
• Positions Tracker: Natixis, Barclays, Credit Suisse, Commerzbank All Short GBP/USD (eFXnews)
• Cable nearing bids after drop but case for downside growing (Forex Live)
• No Further BoE QE Until August – JP Morgan (eFXnews)
• Monetary base (The Really Real Economy) [CHART]
• Fitch Downgrades UK Credit Rating (City Index)
• Osborne Suggests an Independent Scotland Wouldn’t Keep Pound (Bloomberg)
• Philly Fed Misses, BOE’s Weale Dovish (AshrafLaidi.com)

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Iron Lady rightfully(?) kicking the King of Capitalism

What happened Monday? What a trading day. Commodities fell off a cliff in a real scary way. $GBPAUD, $GBPNZD, and $GBPCAD rallied over 200 pips in yesterday’s trading session as those commodity dollars took a major hit along with $GLD, $SLV, and $CL_F. It was incredible. Then bombs exploded later Monday morning during market hours in Boston. Another terrorist attack in the United States. The USD rallied slightly on the news as $GBPUSD tumbled below support but in today’s trading session cable looks bullish again. The markets feel a bit more stable today as the sterling continues to firm except versus the euro. $EURGBP has taken out major resistance at 0.8570 as it has rallied to new highs so far today at 0.8582. What is the world coming to?

• Gold price crashes (City AM)
• New low in pound net spec futures positioning (StockTwits) [CHART]
• Slovenia Not in the Danger Zone: Pro (CNBC) [VIDEO]
• Britain is more credit worthy than China (FxBriefs)
• UK growth back at trend rate, OECD says (Telegraph)
• Billions of pounds of QE unlikely to cause inflation – IMF (Telegraph)
• France plans currency swap line with China: paper (Rueters)
• Bank of England has ‘no new toys to play with’ to boost economy (Telegraph)
• Margaret Thatcher’s death on newspaper front pages – in pictures (The Guardian)

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To start the new week, the key levels were 0.85 to the downside and 0.8570 and 0.86 to the upside. Monday, price held 0.85 on a dip to 0.8515. Yesterday, $EURGBP broke both resistance levels. Now today following the release of poor UK employment numbers, $EURGBP has made new week highs at 0.8637 (at the time of this writing). Key levels from here are now 0.8600 to the downside and 0.8670 and 0.8750 to the upside.

During the Cyprus fiasco, I didn’t think EUR could recover. I thought the party was indeed over. This euro strength is ridiculous. But even ridiculous can make money.

Mentioned here:

• TOP 3 FOREX TRADES FOR Q2 (BK Asset Management)
• Slovenia Not in the Danger Zone: Pro (CNBC)
• The Other Side of The Euro Party (FaithMightFX)
• Sterling Digest, March 17 2013: dangerous precedent (FaithMightFX)

The post Euro Strength Is Ridiculous appeared first on FaithMightFX.

Price so far has managed to find support in the former resistance zone between 1.5230 and 1.5250. But bulls shouldn’t get too aggressive here. Later this morning, markets expect the release of UK manufacturing PMI number. As manufacturing and construction data releases have been poor all year, the market expects another weak number. I expect knee jerk price reaction on a poor release to send $GBPUSD lower into the yellow buy zone. But because the market expects such a release, the bearish sentiment will be short-lived. As such, I expect that price can still move higher still into 1.54 long-term support-turned-resistance. Conversely, a stronger-than-expected release has the potential to reignite this GBP rally ahead of the 50% Fibonacci level. Trade what you see!

Background reading:
Can Sterling Really Rally? (FaithMightFX)
Sterling Digest, April 8 2013: freedom to grow (FaithMightFX)

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This may not work but neither will austerity

As expected last week, sterling has strengthened though mostly on the back of weaker fundamentals elsewhere in the world. The weaker-than-expected US jobs report helped $GBPUSD surge above 1.5250 resistance that had capped rallies since February. The weak Canadian jobs report also sent $GBPCAD to new highs at 1.5650 also not visited since February. The $GBPAUD reached new highs at 1.4825 on the back of a still dovish RBA. The only sterling pair that hasn’t found GBP strength is the $EURGBP as the EUR finds a Cyprus bottom for reasons outlined well in the linkfest below. It’s a light calendar this week with all eyes on Wednesday’s FOMC minutes release.

• Week Of Major Currency Shifts Flips Me Bullish Australian And British Currencies (Seeking Alpha)
• Can Sterling Really Rally? (FaithMightFX)
• What’s On The Cards For GBP/USD This Week? (eFXnews)
• If Britain is ‘broke’, it has been for most of the last 300 years (The Guardian)
• Morgan Stanley Has A limit Order To Buy $10 Million EUR/GBP At 0.8450 Targeting 0.8900 (eFXnews)
• The European Noise Festival (Phil Pearlman)
• UK services grow strongly in March, recession likely avoided – PMI (Reuters)
• More Evidence of Sterling Strength (FaithMightFX)

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EUR/GBP

The $EURGBP had a bearish divergence as it found resistance yesterday against 0.8500 major psychological level. However, sterling weakened tremendously into today’s Bank of England (BoE) rate announcement (the 1st of 2Q2103) causing the pair to spike above 0.8500 to a high of 0.8521. Now that the event risk has passed, the pair has moved lower and looks to target support at 0.8400. A break below targets the 50% Fibonacci level at 0.8285 giving GBP a 200-pip rally.

GBP/NZD

The $GBPNZD had a bullish divergence yesterday even as it dropped to new lows at 1.7909. The pair rallied to the major psychological level at 1.8000 where it found resistance into the BoE rate announcement. However, like $EURGBP, after the announcement sterling strength pushed the $GBPNZD above 1.80 to a high today at 1.8054. Even on today’s intraday pullbacks, price is managing to now find support at 1.80. If this level can hold as support, this pair can rally back to the resistance zone between 1.84 – 1.8450. A break above this resistance has the potential to rally to 1.8900, the 50% Fibonacci level of the entire breakdown, giving GPB in this pair a 900-pip rally.

Given these daily charts, I have to stress that GBP strength goes against the very strong bear trend that has seized sterling since the beginning of this year. Any rally will be VERY choppy, meaning, highs will be met aggressively by sellers. We have seen this in $GBPUSD just this week with highs at 1.5260 on Monday being sold to 1.5075 lows; and again with Tuesday highs at 1.5150 being sold to 1.5033 today. Therefore, it is prudent to take profits at resistance levels rather than hold for large swing moves. It is also prudent to pay close attention to the BoE. If the vote shifts to more members wanting additional QE or if an actual QE increase materializes, all bullish bets are off. However, the converse is also true. If fewer members call for QE and monetary policy continues to be on hold, a sterling rally can really take hold. The BoE minutes are due out in a couple weeks. That will give us our first 2nd quarter impression of what the BoE sentiment really is.

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