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Tag: GBPCAD

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Sterling Digest, January 20 2013: Safety issues

Goodbye Europe. The Economist cover

Sterling has weakened considerably to kick off 2013 with several themes at play here. One is the fundamental fact that the British economy stands to enter a triple dip recession having ended 2012 with no growth. Secondly, the EU is looking  much more attractive to investors. While 2012 will be remembered as the year investor fled euros and parked their money in sterling and swiss francs, 2013 sees these same investors putting their money back in euros. Lastly, I have noticed that sterling is correlating to the USD much differently than it had in 2012. While a strong GBP saw a strong USD (and visa versa), that correlation is no longer. Now sterling is weak across the board with currencies of the stronger economies (CAD, AUD, NZD) leading the charge.

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GBPCAD Stays Rangebound

$GBPCAD in in a long term bear trend evident on the weekly chart. However, it has spent the last 2.5 years stuck in a wide 1000-pip range between 1.6400 and 1.5400.

GBPCAD weekly chart

It also interesting to note that this range has been narrowing over the last 12 months. A narrowing range is typically a small hint that the prevailing trend is getting ready to resume. Fundamentally, the Canadian economy has posted some surprisingly strong numbers so far in 2013. Meanwhile, the British economy is not fairing very well at all. This sharp contrast in fundamentals helps fortify the long-term bear trend.

For now, the $GBPCAD is very much rangebound. Even a close below the range bottom at 1.54 still would not signal a resumption of the long term trend. It would take a close below the 2010 lows at 1.4835 before this pair can truly break out to the downside. And that level is still a long way off. Best for now to trade the range.

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GBPCAD Above 1.60

GBPCAD daily chart

I haven’t traded the $GBPCAD much this year. Despite some tremendous swings in price action, the 200-day simple moving average tells us that this pair has essentially been flat all year. And I typically stay away from trendless environments. But with price now above 1.60, the $GBPCAD has very specific behavior at this price level that I think provides opportunity.

While 1.60 is the major psychological level, it is 1.6050 that has been the level to determine future direction for this pair. We can see that when price closes the day above 1.6050, we typically see a 200-pip move higher in the $GBPCAD. Even in a trendless environment, those are price moves that swing traders can certainly take advantage of.

Disclosure: Long at 1.6029

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The Temperamental USD

The USD has threatened to rally for months now. But the $GBPUSD remains in its 300-pip range between 1.5500 and 1.5800. Every time traders, and I do mean ME, gets bullish or bearish due to price action, the USD finds a way to do just the opposite.

For example, despite completing the quarter to 1.5750 on USD ($DX_F) weakness this week, cable never broke above the level to challenge the highs at 1.5800 midterm support and resistance. I was bullish cable going into this trading session. I thought price would continue to rally into 1.5750 – 1.5800 zone and then experience a sharp selloff. The selloff came sooner than expected when risk aversion kicked in as Spanish bond yields and equities spooked the market

So what happens next week? With Spanish (and Italian) yields hitting these high rates at the end of the European session, we can expect the USD to continue to rally when the market opens in Monday trading causing this “Strong USD, Strong GBP” theme to play out once again. As such, this week’s GBP bears should enjoy some profits heading into the weekend. $GBPNZD and $GBPAUD short positions, in particular, paid out nicely this week with continuations in the weak sterling vs. commodities trend. However, do not underestimate this USD. It still rules capital flows and when it is strong on risk aversion fever, GBP will also benefit in the crosses. Most notably, the $EURGBP, $GBPNZD, and $GBPCAD are strong candidates into next week. Trade what YOU see!

EURGBP DAILY
Looking for 0.7800 to hold on a bounce
GBPNZD DAILY
This week’s hold above 1.95 despite kiwi rally looks very good for bulls
GBPCAD DAILY
A close above 1.58 supported by the 61.8 Fib gives some life to bulls

 

 

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Strong USD, Strong GBP

There is a new theme emerging with the USD BREAKOUT this week. Everything is weak against USD. $GBPUSD has fallen over 650 pips in 4 weeks. It ended last week on a technical break of the 61.8% Fibonacci retracement level of its entire rally off the January 2012 lows. That was the last defense for bulls though their case was lost with price action below 1.60 for 2 weeks now. However bearish cable may be this does not at all roll neatly into a weak sterling story.

On the contrary, sterling is killing almost everything else. GBP is at multi-year highs against the euro. No secret there as to why. But the commodity dollars are also weakening tremendously against sterling on broad-based weakness in commodities. The strong USD combined with slowing Chinese growth is looking to make commodity weakness a new trend in the short-term.

When trading these markets, timing is crucial. The reason for the choppy consolidation around 1.60 in $GBPAUD and $GBPCAD is due to the sterling weakness in $GBPUSD and general GBP strength in $EURGBP and $GBPNZD. The EURGBP close below 0.80 signals more GBP strength; even as the $GBPUSD close below 1.5750 signals more GBP weakness there. The correlation is ironic. But price action is truth. The strong USD — strong GBP theme bears paying attention to as we head into summer trading.

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1.60 The Big Figure

60 Yonge Street
The Bigga Figure

The market loves magic numbers. And the one on radar is 1.60. GBP is dealing with 1.60 on 3 currency pairs that I follow. This is quite uncanny and ironic but maybe not so much coincidence. $GBPUSD, $GBPAUD, $GBPCAD is a strong dollar bloc. Their breakouts above 1.60 marked technical reversals across this bloc to new yearly highs. But this week’s breaks below 1.60 looks to undo all of that.

Looking back a year at $GBPUSD reveals that a break below 1.60 after breakout above only points to more weakness. What started as a correction has already turned to a reversal in the $GBPUSD today. @EdMatts did a great video explanation so good it was highlighted twice in the Sterling Digest.

$GBPAUD hasn’t held up in the past when it broke below 1.60 after new highs. Where it has held, price rallied for hundreds of pips before topping out.

GBPAUD daily chart

So now look at the $GPBCAD. It is still holding up as today’s low at 1.6003 is ahead of the big figure even if only by pips. It then bounced over 120 pips to settle at 1.6100 (as of this writing). A close above 1.60 keeps the pair bolstered for a rally higher. But with lower highs on the daily chart, a rally to met by sellers until buyers can prove themselves with new highs.

GBPCAD daily

Nonetheless suffice it to say that 1.60 is a serious psychological level for sterling at the moment. Trade what you see!

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Sterling Digest, May 15 2012: safety status rules

50 British Pounds Sterling
Safety trumps economics

The safe haven sterling rallies on. After a dip in GBP on weak UK trade balance numbers, the $GBPAUD, $GBPCAD, $GBPNZD, and $EURGBP continued on in their strong sterling bull trend. The only currencies that gained on the safe sterling today are the almighty rulers of risk aversion: the greenback and yen.

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Sterling Digest, May 14 2012: safety trumps economics

Money makes the world go round
Investors want pounds

It appears that Friday’s theme was mere profit-taking as good news out of Canada and US was excuse enough to move some money off the table. Sterling is back on trend today with comm dolls leading the way. $GBPAUD, $GBPNZD and $GBPCAD have all broken out above their Friday highs in opening market action. While fundamentals point toward a deteriorating UK economic picture, risk flows dominate with GBP enjoys European safe haven status.

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Sterling Digest, May 11 2012: the cracks appear

Franco-German Summit at the Austerity Euro Cafe
Hollande may not be any different for the euro

Sterling ends the week weak across the board. Profit-taking was the theme this Friday trading session as investors banked pips on a strong bull trend in sterling that has been raging for weeks. As we head into the weekend, the question that traders start to ask is: did we witness a correction this week or the beginning of a reversal as the market comes to grips with a very weak UK economy relative to others in the G10 such as Canada, Australia, and the US. Watch the major psychological level at 1.6000 in $GBPUSD, $GBPAUD, and $GBPCAD for answers into the new trading week ahead.

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Sterling Digest, April 23 2012: bulls maintain control

pounds and pence
Pounds and Pence

$EURGBP breaks to new lows to open the new trading week as fully anticipated by many in Thursday’s digest. Sterling also maintained bullish momentum versus the commodity dollars as $GBPAUD, $GBPNZD, and $GBPCAD continued to rally higher in Monday trading. $GBPUSD was the odd man as it trades in a narrow range struggling with both a strong USD and strong GBP. If USD strength remains, look for cable to correct lower to 1.60 before rallying again to new highs.

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