Sterling Digest: March 23, 2012

Beautiful golf course
Enjoy the weekend - my friend and fellow trader has the right idea here

Being wrong early in cable kept me on the sidelines for the rest of the day. A good day to be out as the $EURGBP, $GBPUSD, and $GBPJPY saw whippy sideways actions to end the week. The $GBPCAD, $GBPAUD, and $GBPNZD came off their breakout highs as commodities firmed up a bit today after vicious selloffs all week. The question for the new week is whether sterling continues to consolidate or will the bull trend resume? Until that time. Enjoy the weekend.

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Sterling Digest: March 22, 2012

UK - London: Oxford Street - Marks & Spencer
Most iconic chain store in the UK yet retail sales drop

Poor UK retail sales weakened sterling across the board. However, it remains to be seen if this weakness will be sustained or if it merely provides buying opportunities for bulls.

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Sterling Digest: March 21, 2012

I think I see a recovery on the cover of The Economist
UK forecasts 2012 GDP at 0.8%

A big day in UK politics with release of Bank of England minutes and the announcement of the country’s budget produced incredible moves in sterling today.

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Sterling Digest: March 20, 2012

10 pounds down the drain
Down drain into a pile of money

The new trading week may have opened with GBP bullishness but as the Monday session ended sterling slipped across the board into Tuesday’s UK inflation release. Expect GBP to weaken further on softer-than-expected inflation even though it is certainly a good thing for the British economy. Don’t expect much follow through on weakness. Sterling may look weak on fundamentals but recent price action favors GBP.

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Sterling Digest: March 14, 2012

Coinage
Despite the bears, sterling won't fade easily

No real surprises from the $FED or the BoJ yesterday as both left interest rates unchanged. With equities higher still after the FOMC statement, it is hard to see risk currencies fall more from here. While the USD seems to be trading on fundamentals (rising on good US news after both US NFP and somewhat hawkish Fed statement), it remains to be seen if that is a new shift in the market or if risk still rules investor sentiment.

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Sterling Digest: March 12, 2012

Lots of big talk made for lots of nice moves in the forex markets today. These central banks are only warming up with comments from Japan today ahead of their official interest rate decision tomorrow. But the $FED has taken to jawboning too. They also release a decision tomorrow but have been in the press for weeks. Lots of focus has been on the $USDJPY with its recent moves higher which should make the conspiracy theorists among us very anxious for Tuesday trading. At any rate, sterling flows were liquid in both directions today depending on your currency pair.

Sterling Digest: March 11, 2012

World Money Expo
An ironic find on Flickr: the World Money Expo. In China

This week rounds out the major central bank announcements for the month of March. Three central banks are on tap to release decisions on monetary policy: the Bank of Japan, the Federal Reserve, and the Swiss National Bank. Of course, the Fed is the highlight. But with the Fed in the news so much last week, one has to wonder what more the Fed can give the markets.

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Is There Something to Month End Flows

During the last days of February last week, sterling strengthened across the board. I noticed it because it was very strange to see the $GBPUSD and the $GBPAUD rise together when these GBP pairs usually diverge. $GBPUSD and $AUDUSD typically rise together on risk and a weak USD resulting in a weak $GBPAUD. Looking at the rest of the GBP pairs, sterling was being bought versus all the major currencies. As companies and investors alike exit positions and/or repatriate profits, capital flows can be even more exaggerated at the end of the month. And it seems investors are positioning with sterling.

But why would sterling go up when the United Kingdom is the only G10 country to fall into recession at the end of last year. The BoE has launched QE3 for the UK. Inflation is quite high even if the central bank chooses to ignore it until it comes back down to acceptable levels. An interesting monetary policy angle that is but that’s for another musing.

So why would sterling go up? Because of China? In yesterday’s digest, a very interesting article suggested that sterling is catching bid as a preferred funding currency to unwind long AUD positions. With China’s economy slowing down, analysts believe that Australia’s economy will suffer due to the declining demand from their large trading partner. A slowdown in the economy the main reason why the Reserve Bank of Australia is signaling a more dovish monetary policy. WSJ‘s Kemble-Diaz argues that the undervalued GBP has more value than other major currencies at such low levels.

Another reason may be seasonality.

seasonality in GBPUSD daily chart
March was a good time of year last year

In $GBPUSD this time last year, March 2011 marked the beginning of a push higher after the rally in January 2011. Cable is certainly well-posied for consolidation after its monster rally higher earlier this year. Another push higher is supported technically as long as price remains above 1.55.

Since seasonality is the buzzword on the financial circuit so far this year, let’s take it a little further. The end of the month into the beginning of the next tends to be a good time for cable. The $GBPUSD has rallied higher in the last months during this time period.

 

seasonality in GBPUSD 8 hour chart
The end/beginning of the month is a good time for cable

 

No matter how you reason it, sterling continues to confound the bears with its strength. Against the USD, maybe $GBPUSD becomes an easy buy. But when supported with a rise in $GBPCAD, $GBPAUD, and $GBPNZD, one need only concentrates on riding this new trend while the opportunity is here and getting off where appropriate. Trade what you see.

Sterling Digest: March 5, 2012

Twenty pound bill by Images_of_Money, on Flickr
Sterling on the rise

Sterling is strong across the board this morning. Despite less-than-expected UK Services PMI, sterling has managed to catch a bid versus many of the major currency pairs this trading session. The only exception at the moment is the $EURGBP, as euro strength battles sterling strength making for a very small range in the pair today.

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Sterling Digest: March 3, 2012

Greece bailout
And in other news this week, Greece got bailed out again...I think...

$GBPUSD finally reached the major psychological level of 1.60 this week with the high at 1.5992. $GBPJPY breached its major psychological level of 130.00 with its high of 130.11 this week. However, both pairs finished the week with a healthy pullback as sterling weakened versus most of the majors on Friday. The $EURGBP was an exception as that pair probed new lows on the week at 0.8314 on across-the-board euro weakness.

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