Sterling Digest, 13 August 2013: mixed post guidance

DJ mixing sound board
Carney remixes guidance for UK

Sterling has been mixed since the announcement of forward guidance giving the Bank of England (BoE) a dual mandate to target both inflation and unemployment. It also means that economic data takes on increased importance as markets parse news to determine central bank sentiment and direction in price action. However, sterling has been mixed in the week after forward guidance was unveiled. Last week, GBP rallied across the board post-announcement taking $GBPUSD to 1.5571 and $EURGBP to 0.8578. In this new trading week, however, GBP has weakened considerably off those highs. The spotlight of this week will be the release of the BoE meeting minutes which will give the market a peek into the central bank’s true sentiment on forward guidance. Given the unanimous vote last month not to increase QE, a split vote threatens to weaken the GBP and increase volatility in the near term.

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Timing Is Always Important

Sterling has completed some big time levels in the past week. $GBPUSD hit one-month highs at 1.5571. $GBPAUD broke out higher to 1.7340. And $EURGBP mean reverted back to 0.86 after hitting 5-month highs at 0.8750. I say all that so you can understand why I’m very much on the defensive into this new week. It is important to recognize how likely it is that these particular pairs start the week consolidating these major moves.

With the $GBPUSD linked to the almighty USD, cable will certainly lead. Opening below 1.55 signals weakness that could be short-lived as the Monday session gets underway. 1.5430 resistance-turned-support and the 1.5400 50% Fibonacci level of the rally from 1.5102 to 1.5571 are the key levels of support to watch now at the market open. $EURGBP below 0.8600 has 0.8570 as key to direction. The loss of 1.6925 resistance-turned-support signals further losses toward 1.6750 in the $GBPAUD.

If you enjoyed these major moves, take a seat back. If you missed these major moves, take a seat back. Timing is a critical factor in our trading. Be mindful of the timing: big moves, August trading, and new shifts in some of the major central banks. There is no need to rush or force trading, today, in particular. Often times, the best opportunities in the market are those you can wait on.

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Sterling Digest, 6 August 2013: flavors of guidance

picture of flavored salts
Which flavor of guidance will Carney serve up?

This week, it is all about the Inflation Report released tomorrow. With no statement released after the Bank of England decided not to change monetary policy, the market has been in hot anticipation of this formal forward guidance that Mark Carney will issue for England. The discussion of forward guidance has become fragmented: hard guidance vs. soft guidance; inflation target vs. GDP target. Given the state of the UK economy, it will be interesting to hear what Carney has to say in his 1st inflation report. Even more interesting will the be the market reaction. Yesterday’s strong retail sales caused sterling to rally hard across the board. Today, however, sterling has weakened after strong manufacturing numbers were released. Either the market is running out of steam or it is already looking ahead to tomorrow’s inflation report.

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Sterling Digest, 30 July 2013: forward guidance

Mark Carney as Buzz Lightyear cartoon
FORWARD!

The new fancy buzzword in sterling markets is forward guidance and Carney is supposed to deliver a hardline version of it after the Bank of England (BoE) announces its decision on monetary policy on Thursday. However, there are mixed views on how markets will react. Some expect $GBPUSD to move higher to challenge to the 2013 highs. Many others, on the other hand, believe the $GBPUSD to move back below 1.50 in reaction to forward guidance. Given sterling’s reaction to the soft forward guidance delivered after last month’s BoE meeting and in light of a progressing economic recovery in the UK, it appears that anything is possible. It quite likely sterling satisfies both bears and bulls in the 2nd half of this year.

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GBP/USD Ahead Of Key Data

The $GBPUSD has met all expectations here with its move right into the 61.8% Fibonacci retracement level of the latest bearish wave.

GBPUSD 4HR CHART

The market now waits on the UK GDP release. The expectations in the market are high for a positive beat which actually increases the downside risks in cable. If GDP disappoints, I believe the rally will be over. The technicals support a resumption of the bear trend with the 61.8% Fibonacci level capping the rally so far and a diverging RSI at these new highs. However, an upside beat or even an inline print will fuel this rally right back to 1.5500. A daily close above this psychological level will mark the beginnings of a reversal in the $GBPUSD.

Trade what you see.

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UPDATE:

I corrected my thoughts on an upside or inline GDP print in my interview chat with FXStreet (at the 3:00 mark).

Sterling Digest, 23 July 2013: #royalbaby bump

royal baby announcement
It’s a #royalbabyboy!

The UK monarchy has a new addition and the hype surrounding the birth of the new prince could arguably be called overdone. But sterling opened the week to news that Kate Middleton was in labor and rallied very nicely in the wake of the good news. $GBPUSD made new highs at 1.5384. $EURGBP broke to new lows at 0.8582. The baby has been here less than 24 hours and he has become responsible for lifting the UK into economic recovery. Talk about influence! In all seriousness though, with the economic calendar extremely light this week, sterling traders are looking ahead to Thursday’s UK GDP release. In light of the some robust numbers from retail sales and PMI in the past weeks, GDP is expected to surprise to the upside. Such a surprise will continue to fuel sterling strength and possibly induce a reversal in the $GBPUSD and $EURGBP. However, GDP expectations are so high that a disappointment may just end the rally.

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