Sterling Digest: March 7, 2012

I hate election years
Seasonally, election years are good for markets

Very muted price action this trading session leaves sterling still weak after yesterday’s pullbacks. The market has entered its wait-and-see mode as we await the RBNZ later tonight and BoE, ECB, and BoC on Thursday morning. As boring as today may be, it gets just as interesting in the next 24 hours.

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Sterling Digest: March 6, 2012

Australia. The Golden State. The Economist (cover)
Screw the headlines. Markets fell today on a neutral RBA.

What a difference a day makes. Profits were quickly taken this morning as sterling falls back across the board. The stark contrast to yesterday’s bullishness is what markets are made of. FIVE central bank decisions in a week will do that. RBA killed the AUD to kick off this Tuesday trading session. A neutral RBA acknowledged a slower economy yet still left a small signal for further monetary easing. Investors sought out USD and JPY sending $GBPUSD and $GBPJPY to new lows. Risk aversion dragged sterling down against everything else with $GBPCAD, $GBPNZD, $GBPAUD, $GBPCHF all down on the day.

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Is There Something to Month End Flows

During the last days of February last week, sterling strengthened across the board. I noticed it because it was very strange to see the $GBPUSD and the $GBPAUD rise together when these GBP pairs usually diverge. $GBPUSD and $AUDUSD typically rise together on risk and a weak USD resulting in a weak $GBPAUD. Looking at the rest of the GBP pairs, sterling was being bought versus all the major currencies. As companies and investors alike exit positions and/or repatriate profits, capital flows can be even more exaggerated at the end of the month. And it seems investors are positioning with sterling.

But why would sterling go up when the United Kingdom is the only G10 country to fall into recession at the end of last year. The BoE has launched QE3 for the UK. Inflation is quite high even if the central bank chooses to ignore it until it comes back down to acceptable levels. An interesting monetary policy angle that is but that’s for another musing.

So why would sterling go up? Because of China? In yesterday’s digest, a very interesting article suggested that sterling is catching bid as a preferred funding currency to unwind long AUD positions. With China’s economy slowing down, analysts believe that Australia’s economy will suffer due to the declining demand from their large trading partner. A slowdown in the economy the main reason why the Reserve Bank of Australia is signaling a more dovish monetary policy. WSJ‘s Kemble-Diaz argues that the undervalued GBP has more value than other major currencies at such low levels.

Another reason may be seasonality.

seasonality in GBPUSD daily chart
March was a good time of year last year

In $GBPUSD this time last year, March 2011 marked the beginning of a push higher after the rally in January 2011. Cable is certainly well-posied for consolidation after its monster rally higher earlier this year. Another push higher is supported technically as long as price remains above 1.55.

Since seasonality is the buzzword on the financial circuit so far this year, let’s take it a little further. The end of the month into the beginning of the next tends to be a good time for cable. The $GBPUSD has rallied higher in the last months during this time period.


seasonality in GBPUSD 8 hour chart
The end/beginning of the month is a good time for cable


No matter how you reason it, sterling continues to confound the bears with its strength. Against the USD, maybe $GBPUSD becomes an easy buy. But when supported with a rise in $GBPCAD, $GBPAUD, and $GBPNZD, one need only concentrates on riding this new trend while the opportunity is here and getting off where appropriate. Trade what you see.

Sterling Digest: March 5, 2012

Twenty pound bill by Images_of_Money, on Flickr
Sterling on the rise

Sterling is strong across the board this morning. Despite less-than-expected UK Services PMI, sterling has managed to catch a bid versus many of the major currency pairs this trading session. The only exception at the moment is the $EURGBP, as euro strength battles sterling strength making for a very small range in the pair today.

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Sterling Digest: March 4, 2012

Currency wars The Economist
Pretty much akin to 5 central bank decisions in 1 week

This week is packed with event risk as market participants get ready for interest rate decisions from 5 major central banks this week, including the Bank of England, as well as the US NFP. Traders should be ready for what will no doubt be a very volatile trading week.

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Sterling Digest: March 3, 2012

Greece bailout
And in other news this week, Greece got bailed out again...I think...

$GBPUSD finally reached the major psychological level of 1.60 this week with the high at 1.5992. $GBPJPY breached its major psychological level of 130.00 with its high of 130.11 this week. However, both pairs finished the week with a healthy pullback as sterling weakened versus most of the majors on Friday. The $EURGBP was an exception as that pair probed new lows on the week at 0.8314 on across-the-board euro weakness.

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What a professional journey it has been for me these past 3 years. When asked to do a personal blog, I passed on this opportunity when first presented to me almost 9 months ago. I didn’t think myself ready or even worthy to present ideas under my own brand. Tweeting is one thing. Even being an editor of a blog is a very different thing. I can hide (more or less) amongst other traders and opinions. But under my own blog, it’s just me all the way out there. I had done it before but on StockTwits it’s just a completely different level of authority and respect so I had to be sure that I could represent.

Thankfully, opportunity knocked twice and I was a fool only once before. I snapped on it this time. I put things in place and finally here we are. It’s been quite a journey. From trader to tweeter to editor and now my own personal forex blog. Thank you StockTwits! Let’s do this!