Is This The Bottom?

Last week, I was on the air live with Dale Pinkert, host of FXStreet’s Live Analysis Room. My episode is down below. It’s always fun talking GBP with Dale because he always has insights to share with me as I do with him. His experience in futures on top of the forex always leads to a good conversation. The interview never feels like an interview. Just good trading talk between friends.

The interview took place the day before the September non-farm payrolls dropped. You’ll hear us talk equities quite a bit. With the weakness in the $SPX, I explain why the $GBPJPY was actually looking to fall further to 174.86 and possibly even as low as 167.99. But the weakness in the NFP report may change everything. Apparently, Yellen and the $FED did know something we all didn’t know. The recent global malaise in China, Syria and Brazil are, in fact, starting to show ripple effects in the U.S. economy. And if this economic weakness becomes a trend, interest rate hikes out of the Federal Reserve are off the table. Probably completely. Definitely for 2015. The lack of wage growth and the less-than-expected jobs growth has finally convinced markets that the $FED is not moving on interest rates. In fact, whispers of QE4 are back. Expect that drum to beat louder if the U.S. economy starts to show more weakness in the months ahead.

Looking at the $GBPJPY as our equities proxy, the Friday close above the 181.00 support level is a bullish signal in light of the strong close in the S&P 500. Watch here:

RBNZ Ushers in More Kiwi Weakness

The $GBPNZD continued its move higher last week by extending the rally to new highs at 2.1709. Since the breakout rally took out the former highs on both the daily and weekly charts, we must look to the monthly chart for the potential of a continuation higher. Looking at the monthly chart, the importance of the 2.1050 level is significant for future direction. After finding resistance at the 2.2050 level back in, the $GBPNZD made many attempts to move lower. Soon the $GBPNZD was trading in a huge range between 2.1050 and 1.9250. The past two months found price holding the bottom of that range to breakout above the range top. With a confirmed close above the key 2.1050 level, the $GBPNZD has potential to move higher still. The next major level of resistance is found just above the major 2.2000 psychological level.

GBPNZD MONTHLY CHART

While the breakout of last week took price to new highs, momentum, on the other hand, did not follow suit. The RSI shows a bearish divergence on the daily chart at the highs. This divergence has the potential to push price lower into the buy zone marked by the Fibonacci levels of the latest bullish wave. Though the 2.1050 level is a key level for direction, it is the 2.0800 level that must hold as support for the $GBPNZD to maintain its bullish bias.


This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time updates to the weekly report. AVAILABLE NOW.

My Appearance on FXStreet’s Live Analysis #FXRoom

It was FOMC DAY in the #FXRoom yesterday. A big day for a big interview and Dale Pinkert (@forexstophunter) at FXStreet didn’t disappoint. We talked about the how the $FED may effect markets just a few hours later. I run through some chart art on the $GBPUSD, $EURGBP, $GBPJPY, $GBPAUD, and $GBPNZD. This is my 1st interview since launching Quid Report. So I basically talk through this week’s issue giving traders a sneak peek into my new project. Enjoy the video!

QUID REPORT – NOW AVAILABLE

QUID REPORT

Election jitters played out in trading last week as the GBP weakened across the board. Economists and financial media took to extreme headlines about sterling volatility spiking due to the uncertainty surrounding this particular general election cycle. The GBP did slide but election jitters did not take the GBP under siege. Rather, the Bank of England (BoE) hold on monetary policy last week gave the GBP a bit of reprieve from the election selling. Without a statement from the BoE after its policy announcement, the market is left to trade on its own expectations for a series of interest rate increases out of Great Britain to begin in early 2016. However, in the past few weeks, BoE members have taken to jawboning to temper those hawkish expectations.

In addition to hawkish expectations and election jitters, trading this month is already fraught with seasonality themes….

Read the full report: Quid Report, Volume 7 (subscribers only).

Can Kiwi Break Out?

The GBP/NZD rallied as expected last week. It moved higher past the Fibonacci levels to the high at 1.9996. However, the 2.00 level served as formidable resistance for last week’s rally. As warned last week (Volume 5), the pair immediately gave up 2 support levels below the 2.00 resistance when it moved back to 1.9824 after the high. It was at this point, even after the subsequent bounce out of that level to 1.9965, that sellers took back control of the GBP/NZD.

The pullback from the 2.00 resistance level has already breached the 61.8% Fibonacci level of last week’s rally. That is one signal that price will continue lower but it a tentative signal. The GBP/NZD is a volatile pair so an overshoot of levels is not a definitive indication of direction. However, momentum on the RSI is still squarely in bearish territory even after the rally to 1.9996. From this point of view, the GBP/NZD is biased to move lower to support at 1.9350.

GBPNZD DAILY CHART

The GBP/NZD remains range bound between 2.0800 and 1.9350. However, given the failure at the middle of the range it is likely that a return to the range bottom might push to new lows towards 1.9250. This level is the extreme range bottom, if you look at the entire range between 2.1055 and 1.9250. With the RSI on the weekly chart also firmly in the sellers territory, there it seems sellers are looking to push lower than the 1.9569 lows of last week.


This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the top of the week, including access to @faithmightfx on Twitter for daily, real-time calls and adjustments to the weekly report. AVAILABLE NOW.

The Sterling Digest, 31 January 2015: central bank drama

Davos cartoon posted on Twitter
The World Economic Forum. The time of year when central bankers like to surprise.

It’s been an incredible month. Our first trading month of 2015 is in the books and it did not lack for surprises and drama. Crashing oil prices kicked off volatile trading as the new year began. The Swiss National Bank got things going with their surprise abandonment of their currency peg to the euro and interest rate cut into negative territory. The Bank of Canada surprised markets too with its interest rate cut much sooner than markets expected. The European Central Bank also managed to surprise with a larger than expected quantitative easing package. The Federal Reserve surprised markets too but in the other direction. While it did not make any changes to monetary policy, the $FED remains hawkish following Yellen’s hawkish signals in December. Finally, the Bank of England turned seemingly dovish with its hawks relinquishing their call for interest rate hikes. The incredible drama series that was January certainly sets the stage for a new normal to emerge in 2015.

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GBP/NZD Sets Up

The GBP/NZD opened the week very bullish as signaled by its close above 1.9750. The rally this week has already recovered all of last week’s losses. However, the GBP remains a sell as the rally this week has been capped at the 61.8% Fibonacci retracment level.

GBPNZD DAILY CHART

 

The Aftermath of NO Vote

So the United Kingdom has avoided divorce and remains united after all as the Scots voted against independence last Thursday. The market has responded with massive sterling strength across the board. In fact, we have breakouts in the $GBPJPY, the $EURGBP, and the $GBPNZD as the weakness in the cross currency serves to exacerbate these rallies.

The $GBPUSD, however, may not rally like its cross pairs. This relief rally in cable is still a corrective rally and will likely meet resistance at the 1.6750 resistance level. Furthermore, there is confluence at this major level as the 61.8% Fibonacci level of the entire decline also falls at this level.

GBPUSD DAILY CHART

Before the 1.6750, I’d expect offers to come in at 1.6500 and 1.6620, the 50% Fibonacci level. But it is the 1.6750 level where bulls will ultimately have to prove themselves.

Trade what you see.

The Scottish #IndyRef

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My first reaction was that market doesn’t care about my take so why would I have one. Each day, I attempt to approach the markets with humility because I don’t want to fall in love with a bias that will beholden me to a position. But if I’m really honest with myself, of course I have a take on the referendum!

I don’t think the Scots will go through with it. And if I’m right the market will flail about for a few hours, or days, and go back to trading the status quo. And the stays quo is that the economy is not as strong as it was a year ago. Wage growth, the new forward guidance, is tepid at best. No matter what Carney says, I don’t think he can convince a majority of the MPC to raise internet rates until there is more proof of inflation beyond house prices. In fact, the weakness in commodities actually buys the BoE some time as energy prices are even less of a drag on inflation than they’ve ever been before.

If the Scots prove me wrong and vote in independence, then the pound sterling will weaken fast and sharp across the board. A currency crisis will literally materialize in a matter of hours as markets deal with a sudden GBP currency union or a new Scottish currency.

So, in conclusion, my take is bearish GBP. But I know the markets can do whatever they want to do. So whatever you do with this “insight”, please do mange your risks appropriately and trade what you see.

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Something Had To Give

Last week was a seemingly anti-climatic week. The $GBPUSD had wild swings in both directions only to really have gone nowhere. It ended the week slightly lower. The $EURGBP has broken lower but no follow through yet. $GBPJPY is also lower after it failed to make a new high after its correction but no new lows. The $GBPNZD broke its range to the upside only to be capped by the larger 1.9750 resistance level.

As the new trading week opens, sterling is on the back foot. Last week’s lackluster was indecision and the market can only remain “stuck” for so long. Something has to give and something always does. But GBP is a mixed bag. While the rally in the $GBPUSD has given way to risk for a bigger sell-off, the $GBPNZD looks poised to move higher.

GBPUSD DAILY CHART

GBPNZD DAILY CHART

The $GBPJPY has also bounced nicely off the lows.

GBPJPY DAILY CHART

And the $EURGBP has become a battleground between $EURUSD weakness and $GBPUSD weakness.

EURGBP 4 HOUR CHART

 

The release of the Bank of England minutes, retail sales and Q2 GDP this week will either sink or boost sterling. If the minutes reveal any hawkish hints, particularly any votes for a rate hike, any chance for a correction are over. However, if the minutes turn out to be another non-event, retail sales and GDP become much more important. I think it would take a miss in both those releases to turn the tide on sterling. Watch the charts. Mind the calendar. Trade what you see.