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Tag: EURGBP

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The Other Side of The Euro Party

On Friday, I laid out price action that could suggest a weak euro in the short term. Today, Kathy Lien laid out the fundamentals that could shift market sentiment euro bearish.

… investors look to economic data and the European Commission’s forecasts for clues on whether the 5% decline in stocks and sharp contraction in Q4 GDP growth means that euro’s problems have returned.

The decline in Eurozone GDP growth in the fourth quarter raised concerns that the complete lack of growth last year and the prospect of a flat first quarter will make budget deficits in the region even more unsustainable.

Germany has been carrying the Eurozone on her shoulders and this week we learn whether she continues to do so vis a vis the IFO and PMI reports. If economic activity in Germany continues to surprise to the upside, the euro could find support but if there are any downside surprises, the currency could tumble quickly.

This week could be epic for euro or just a non-event. Either way, the holiday-shortened week has already been volatile and choppy for euro positions. The $EURGBP has already tested higher to 0.8650 as 0.8600 holds. So the euro is trying to keep the party going. Time will tell.

Read Kathy’s entire piece, Have the Euros Troubles Returned?

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Sterling Digest, February 18 2013: serious shifting

New Design of UK Pound Sterling Coins, Flickr
GBP shifts bearish but not everyone agrees

One of the most interesting bits of news last week that went largely unnoticed was Ray Dalio’s positive take on sterling. Talk about a bold, bullish call in the face of new lows and poor fundamentals. While the week ended with sterling rallying on profit-taking, GBP pairs are still very bearish. $GBPUSD, in particular, is especially vulnerable as it finally shifts below the major 1.5500 level. The $EURGBP is the most bullish GBP pair but that comes at the whim of a weak euro. However, the market hasn’t quite made that weak euro shift yet. And the $GBPNZD has staged a breakout to the downside after 2 years of consolidation. With the BoE minutes and unemployment numbers the only UK releases this week and profit-taking already underway, watch for GBP pairs to shift back to their long-term bear trends or move higher still on more price correction.

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Is The Euro Party Over?

The $EURGBP wowed traders last month as it staged a rally not seen in several years. However, since then ECB officials have shown mild disdain for the strong euro. While the $EURGBP staged an impressive bounce off the 0.8440 lows, it failed to even make a new high above 0.8716.

EURGBP DAILY CHART

And now the pair is staged to drop lower still. I’ve been watching and trading the $EURGBP long enough to know that when it breaches the 38.2% Fibonacci retracement level on any given timeframe, you can expect it to continue on to test the 50% Fibonacci level. On the daily chart, looking at the recent bullish wave, we see that price breached that 38.2% Fibonacci retracement level. The aforementioned failed high confirms price will continue lower to the 50% Fibonacci level at 0.8400.

From there, it will be interesting to see how the pair unfolds. The fundamentals have taken a less than rosy turn this week and future data could continue to support an economically faltering EU with little tolerance for the high exchange rate. Price below 0.84 could be the beginning of the end of the euro. Again. But, for now, this is only a correction. Only a daily close above 0.87 changes the impending bearish outlook.

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Sterling Digest, February 11 2013: a fading rally

Kipper Williams cartoon, The Guardian
So Carney is not the UK’s savior?

GBP ended last week in consolidation as the technicals were helped in large part to the fundamentals when UK economic data surprised on the strong side and incoming B0E governor Carney surprised markets by steering clear of his dovish Davos comments on monetary policy. All this helped sterling rally last week to new highs across the board. This week holds a light economic calendar from the UK which may allow sterling to continue its consolidation rally. However, watch the current market sentiment to change on a whiff of bad news. With CPI, retail sales, and the BoE Inflation Report out this week, any of these news events has the potential to send sterling back on its long term bear trend.

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Sterling Digest, February 4 2013: week of the central banker

Bank of England at Night - Arsat 30mm Fisheye lens on Flickr
BoE at night – What happens behind closed doors?

This is the week of central banks as the market looks ahead to 3 central bank announcements from the Bank of England, the European Central Bank and the Reserve Bank of Australia. After consolidating most of last week, sterling diverged in Friday’s price action weakening against every major currency except the JPY. While the USD weakened on a NFP miss against the EUR and NZD, it gained against the GBP. The reason is a fundamental one. The US economy is in better shape than the UK. While both were surprisingly disappointing, US GDP contracted by less than the UK GDP. UK manufacturing PMI missed expectations; US ISM exceeded expectations. The $FED is on hold; the BoE is dovish and likely to enact another round of QE. Following the announcements already from the BoJ, RBNZ, and FOMC, this week’s announcements should complete the fundamental differences in the major currencies. With the forex market now trading on fundamentals (and not risk appetite), the best trades now become the ones that exploit the stark differences in fundamentals.

 

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This EURGBP Breakout Is Just Getting Started

The $EURGBP has been building a breakout rally since the last quarter of 2012. Then, the pair was still dealing with European sovereign debt issues making it very difficult for bulls to gain any ground. However, the new year opened with great optimism as the ECB’s OMT scheme shore up investor confidence. And the pair has staged an incredible breakout. In fact, the $EURGBP has exceeded expectations with a breakout above the major psychological level at 0.8500.

EURGBP DAILY CHART

And while the psych level is a big one, it is really 0.8530 that was key resistance for $EURGBP.

EURGBP WEEKLY CHART

As last week ended, $EURGBP made highs above 0.8530 but did not manage a close above the resistance level. However, it remained supported by 0.85 and closed the week above the major whole number. Now, as the new week opens, the pair has climbed back above 0.8530 with the hourly chart registering candle closes above the resistance level. This is good news for bulls as price action continues to be very constructive. A pullback into 0.8500 and 0.8470 will be met by bids as price targets the next key resistance level at 0.8670.

 

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Sterling Digest, January 27 2013: follow the trend

KAL Cartoon in The Economist
Can the British economy really afford to abandon the EU?

Last week was epic for sterling. The $EURGBP rallied to new highs above the psychologically important 0.8500 level. The $GBPUSD, $GBPNZD, $GBPAUD, and $GBPCAD all fell to fresh 2013 lows early in the week heading to the Bank of England minutes release. However, when the BoE minutes revealed that it was ready to end quantitative easing and unemployment in the UK fell to new lows, sterling rallied off the lows. In fact, thank in large part to the Bank of Japan, the $GBPJPY rallied to its highest levels in over 2 years. Despite policy makers in the BoE calling for an end to QE, the economic realities of the UK may not allow that to happen. And since BoE meeting minutes are backward looking, sterling may not be able to sustain its Friday gains in this new week of trading. With a very light economic calendar from the UK this week, expect sterling to trade very technically and at the whims of the USD with the $FED rate decision looming mid-week.

 

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Euro Gains Optimism in 2013

Last I wrote on the $EURGBP, the pair was building a bullish scenario above the major psychological level at 0.8000. Since then, the $EURGBP managed to move higher making new monthly highs at 0.8230 to end 2012.

Now, the fundamentals have aligned to make this trade even more attractive. First, the Olympic glory has faded from the British economy with calls for a triple dip recession in store for 2013. EU fundamentals, on the other hand, have stabilized as ECB President Mario Draghi managed to calm financial markets with new QE schemes introduced and bolstered in 2012. To be clear, the economies in Germany, France, and the PIIGS are still very weak. But after dealing with Greece and the PIIGS for so long, the UK managed to get through 2012 with very little market attention to its own weak economic state. Now that the ECB has finally decided to shore up the EU, the market’s attention has now turned to the UK. This new contrast in fundamentals could help bolster the $EURGBP to new highs in 2013.

 EURGBP daily chart

Since the new December high, the pair has corrected lower to the key 0.8100 level to kick off the 1st trading days of 2013. Despite spikes below the level, $EURGBP never managed any bearish momentum below 0.81. After the week’s close well above 0.81 and the new shift in fundamentals, look for this pair to make new highs above 0.8230 in the days and weeks ahead.

 

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Sterling Digest, January 5 2013: Trust the crosses

Cover artwork from The Economist 2012 Christmas double issue
Happy new year?

To kick off the new year, the global fundamentals still stink. Currency wars still rage across the globe. American politics continue to debase the world’s reserve currency. And after entering recession in 2012, the British economy is poised for depression in 2013. As terrible as the fundamental landscape seems, I agree with @kathylienfx (read her articles below). The trades that make the most sense in 2013 are the currency cross pairs. While the majors are mired in USD murkiness (fundamentals vs. risk appetite), the crosses more clearly reflect the fundamentals. And as such, these currency pairs seem to have the best trading opportunities in the current forex market environment.

 

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The EURGBP PreMarket

In the forex markets, premarket is really only early Sunday morning. With charts frozen until the afternoon open, this can be the best time to find insights before charts start ticking again.

I have been trading the $EURGBP very actively these past 2 weeks. The weekly chart continues to be constructive especially as price held support at 0.7950 to head higher back to 0.8110 on Friday.

EURGBP weekly chart

Last week started at 0.8003:

EURGBP daily chart
Hindsight is 20/20

EURGBP daily chart as of today premarket

Now we sit at 0.8090 to close that week. That close puts 0.81 at play to determine direction in price action this week. A dip to 0.8050-30 is still possible when markets open because of the close below 0.81 but should be short-lived. I expect price to see itself back above 0.8100 later in the Monday session. Only a close below 0.80 changes the bullish picture in play on the weekly and daily charts.

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