ON THE AIR with F.A.C.E.

Happy new year to the Forex Analytix team! This team of traders are experts and veterans in forex trading. Many of them I have been following for many years on Twitter (@nictrades, @spz_trader, @forexstophunter) and even before there was a Twitter (@pipczar). But the F.A.C.E. community is also full of many expert traders as well as new traders. So when I am asked to come on the show and discuss my views of the market, I consider it quite an honor. The respect, questions and great feedback I get from this team and audience makes it such pleasure to return.

Dale has such great timing as I made my first 2018 appearance on F.A.C.E. right before the Great British pound went on this monster breakout today. I revealed a few secrets that even Dale admitted he hadn’t heard from me before on his shows. The specific levels have been left far behind after Wednesday’s price action but the trading principles I discuss can be applied even now. Enjoy the show!

The Commodity Dollars Signal

The market seems to be turning higher for the commodity dollars (comm dolls), which is inline with the recent price action in commodities. Commodities, like copper, oil, and gold, have been generally rangebound in 2017 following the significant downtrends that started in 2011. During that downtrend in commodities, markets have been operating on loose monetary policy based on the flow of funds from central bank balance sheets and ultra-low interest rates. Now these fundamentals are shifting with balance sheet reductions, interest rate hikes and increasing hawkish central bank sentiment around the globe. With the fundamentals transitioning from one psychological paradigm to another one, increased volatility and choppy price action may start to creep back into the markets.

GBPCAD 4 HOUR CHART

There have been no summer doldrums in the forex markets. Starting with the Canadian dollar, the Bank of Canada (BoC) completely surprised markets last month with an interest rate hike. The start of monetary tightening in Canada now gives the CAD fundamental support for the rally that has taken place for much of this year already. So the correction this week just ahead of the Bank of England (BoE) interest rate announcement this Thursday, was a fantastic opportunity to buy Canadian dollars versus the Great British pound. The corrective rally moved right into the 61.8% Fibonacci level giving a level of risk reward that worked well for sellers ahead of the UK Super Thursday news event. The BoE was more dovish than the market expected as it cut its inflation and economic growth forecasts amongst calls for gradual rate increases. This divergence in monetary policy between Canada and Great Britain may see the $GBPCAD move to new lows.

GBPAUD 4 HOUR CHART

The Reserve Bank of Australia (RBA) released their monetary policy statement this week too. While the RBA is hawkish on the Australian economy, they remain adamant that accommodative monetary policy must remain for that growth to continue. As such, the RBA will likely not move on interest rates at all this year. But neither will the BoE. If this remains the case, the interest rate differential and the divergence in economies should continue to underpin the Australian dollar against the Great British pound.

GBPNZD 4 HOUR CHART

The $GBPNZD was trading in a wide range while we saw the aforementioned breakdowns in the $GBPCAD and $GBPAUD. The $GBPNZD finally joined suit and fell to new lows at the 1.7400 support level. But the $GBPNZD staged a major correction this week that actually saw price move back to the top of the former trading range above the 1.7900 level just before the BoE announcement. While this complete reversal higher seems like bullish price action, hindsight reveals another fantastic sell opportunity post BoE.

So now that the selling opportunities have presented themselves, can the commodity dollars continue to strengthen against the pound? There is another factor at play here that we have not yet touched upon – the weakening U.S. dollar. A weak dollar boosts most commodities since they are priced in U.S. dollars. Higher commodity prices should bolster the commodity dollars higher as well. But this is no guarantee. So take care with your trades. It’s going to be a choppy month with the occasional bursts of volatility as markets ready for full throttle trading come September. Be patient and take advantage of the setups, like these, when they come.

ON AIR with F.A.C.E

I spend every Sunday with students looking at markets for the upcoming trading week. So I was happy to share this week’s insights with Dale Pinkert this morning of the Forex Analytix Community Experience (F.A.CE.). While F.A.C.E. may be a new community, Dale certainly is not. He is an expert trader who has great experience interviewing the best personalities and experts in the business. So it is always an honor to be asked to discuss my views on markets. The nugget I dropped today that Dale really liked:

Correlations are shot. There are no correlations right now in the market.

What do I mean? Watch my interview and market review to find out.

The Youth vs. The Market

Now that the markets have opened after the week that ended in a hung parliament, I, a mere trader, can now make exclaim,

Theresa May made the biggest mistake of her short tenure as prime minister. FULL STOP.

She completely discounted the voice and vote of the youth. Since the June 23rd referendum vote, it was clear that young British voters in no way approved of a Brexit. But they didn’t vote. Or so it was reported. In my mind, as a disgusted Democratic sitting in California, why would the Prime Minister ever give the citizenry an election so soon after she stepped into office? Americans are waiting excruciatingly for the 2018 midterm elections. Can you imagine trump ever declaring a snap election to prove a point? We could only hope. But I digress. Back to Great Britain. As the market rallied in anticipation of the election, I thought it was market cheer for a new change in Parliament. Surely, folks would oust the party that campaigned for and got their Brexit. The youth were not going to make this mistake twice.

And that’s exactly what they did. The Party of Brexit lost its majority hold. And the voters gave that majority to NO ONE. Fucking brilliant. If Prime Minister May was truly engaged with the public, she would’ve never declared that snap election. She counted on increased apathy to secure a mandate for Brexit. And as such, her party not only lost their Parliamentary majority, nobody won the majority. And the hung parliament just completely changed the fundamental landscape for the Great British pound.

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Nothing More Left in the Aussie

The Australian dollar set off the new year rallying pretty much across the board. Even after some consolidation, the Australian dollar attempted to push the Great British pound to new lows but failed just below the 1.6000 support level. Since that failed new low that put in a higher low than the previous low, the $GBPAUD has rallied over 400 pips to trade at 2-month highs.

GBPAUD DAILY CHART

The move to 1.6400 has ran up against resistance at the 38.2% Fibonacci level. Swing buyers at the lows may seek to book profits here, especially ahead of the weekend. But it is unlikely that this $GBPAUD rally exhausts here. Even if the GBP drops on the Article 50 trigger event next week, bids are very likely to step in on that dip. Additionally, the Reserve Bank of Australia (RBA) is concerned with slowing wages in its economy. This concern prevents the RBA from increasing interest rates despite a still-strong housing market. A weak Australian dollar could continue to fuel this rally right into the 1.6700 resistance level. I think that is the line in the sand for the $GBPAUD. There are former highs at that level as well as the 61.8% Fibonacci level. While I expect profit-taking at 1.6700, a break higher will signal that a larger reversal is in play for the $GBPAUD.

I Survived the Flash Crash

The GBP just crashed in epic proportions. The official number is -5% in 2 minutes and 3 seconds.

GBPUSD 15 MINUTE CHART

It is already being called a flash crash because of the sheer scale of it. And the craziest thing about it is that we were on the right side of it. The following quote is from this week’s Quid Report (Volume 79):

The follow-through lower already this week proves correct the assertion in Volume 76 – that the resumption of the long-term downtrend that is the Great British pound has indeed taken place…It is very likely that this bear trend is the direction sterling trades for the remainder of the calendar year.

The rest of the report this week goes on to outline the setups that took place at the beginning of this week. Most of the targets had been hit before the flash crash except for two trades. These positions are up HUGE.  I haven’t seen this much money on a single trade in a long time.

I SURVIVED THE FLASH CRASH….

So I immediately issued a tweet to all Quid Report readers. This is not verbatim but it was definitely to this effect:

keep calm and carry on

If you were short the GBP ahead of this flash crash – GOOD FOR YOU! KUDOS! How you manage this trade is up to you. But no one will blame you if you close out these positions for all this big money. Taking big profits is the name of the game!

Image credit

Is She Baaaa-ack?

The new trading week is packed with market-moving economic releases out of the UK. Inflation, the UK jobs report and retail sales are all released ahead of the event risk of the week. The event risk of the week for the Great British pound is the BoE interest rate announcement. All of these releases will give a better picture of the British economy in the aftermath of the Brexit shock. It is very likely that these releases are more robust than the market expects. If so, the BoE will not have a reason to move on monetary policy this week causing the Great British pound to rally further. More sterling strength will allow the pound currency pairs to finish consolidation just as the summer doldrums have officially come to an end.

How shall we trade the GBP this week?

Well, we came into the week with a ton of GBP strength.

EURGBP 4 HOUR CHART GBPAUD 4 HOUR CHART GBPNZD 4 HOUR CHART

With CPI and regular wages both weaker than expected, inflation is not raging at all in the British economy.

Great Britain average earnings annual growth rates, seasonally adjusted
Great Britain average earnings annual growth rates, seasonally adjusted. Source: UK ONS

The lack of inflation in wages, though still relatively high, will keep the BoE away from any tightening measures. Coupled with weak consumer prices, the BoE may signal a further loosening monetary policy this week. As such, the GBP strength that started the week is starting to fizzle as we get closer to the actual Bank of England announcement this week. The Friday close will be significant for direction sterling into the end of the year. The summer is officially over. Volatility and traders are back and with them a clear trend is likely to emerge.

Australian Dollar On Fleek

The Australian dollar continues to rip higher with little regard for the Reserve Bank of Australia dovish sentiment. Though the RBA has cut interest rates and will likely cut again in 2017, the market is not blind to the fact that the Australian economy continues to remain robust. The RBA is bullish on the economy too. Australia survived the crash in commodity prices. Now that they are recovering, the GBP/AUD remains biased lower for a continuation of the large Fibonacci move (see Quid Report, Volume 58). The inability of the GBP/AUD to close above the 1.7500-level also signaled bearish price action. While the GBP/AUD now has the room to move lower on a continuation of the bear trend, the bullish divergence remains on the weekly chart. The bullish divergence signaled the rally higher back above the 1.7000-level. The rally this week saw the $GBPAUD move back to the top of the channel.

GBPAUD 1 HOUR CHART

The event risk of the week for the Australian dollar was the RBA interest rate announcement. The RBA did not move on interest rates this week after surprisingly cutting interest rates in August. The $GBPAUD moved slightly higher on Australian dollar weakness after the announcement with no new highs printed. If the lower highs lead to a break of the 61.8% Fibonacci level on the 1-hour chart, this break lower signals a reversal back to the long-term lows at 1.6720. The interim target for sellers, however, is the lows at 1.7208. Only a move back above the trendline invalidate the current bearish bias.

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.

QUID REPORT LIVE

Due to the holiday shortened week and it being the very last week of 2015, no Quid Report was published this week. Instead, I am doing a video update to last week’s written report. While I have been on many forex shows, this is my first time hosting a live broadcast. This should be a quick update and review for the week in progress. Enjoy! And please leave your feedback in the comments. Perhaps this will be a new thing for me in 2016.