@faithmight, Author at FaithMight

June 13, 2014June 13, 2014

The Sterling Digest, 13 June 2014: SURPRISE!

Bank of England Governor Carney has just shocked the market signaling that interest rate hikes could come sooner than the market expects. GBP has skyrocketed across the board on these comments and it should. I just sat in with FXStreet’s Dale Pinkert on Monday saying that UK fundamentals remain strong but I believed that sterling would take advantage of the low volatility and summer trading doldrums to consolidate further. I didn’t think Carney would rattle markets until the August Inflation Report. Instead, he is well ahead of schedule and has put sterling back on track to reach new highs across the board. Already, $GBPUSD has probed 1.7000 and $EURGBP has broken below 0.8000.

Britain’s ‘boomless boom’ baffles the experts (The Telegraph)
Mark Carney’s Speech at the Mansion House Bankers and Merchants Dinner, London (Bank of England)
The Bank of England has good reasons to tighten – in good time (FT)
Dollar Knifed, Carney With a Dagger (AshrafLaidi.com)
Sterling and gilt yields rise on BoE comments (FT)
Carney Rate Hike Talk Drives Over-Eager Buying Of The British Pound (Seeking Alpha)
Carney’s cable combustion: Is the BOE using sterling as monetary policy? (Forex Live)
The Cable Zones (FMFX)
Today’s Appearance in FXStreet’s Live Analysis Room (FMFX)

Image credit

June 12, 2014June 12, 2014

The Cable Zones

After a short seasonal consolidation in May, $GBPUSD starts June very tentative and hesitant around 1.6750. Because of its year-long uptrend, any weakness of late has been met with bids and, subsequently, price moves higher. However, notice also that rallies continue to be met by sellers. So who will prevail: buyers or sellers? Watch these areas of support and resistance for the answer.

A close above 1.7000 will reconfirm the uptrend and invalidate my current bearish bias. On the other hand, as $GBPUSD weakens, price targets 1.6600-1.6500. In this zone of support, price will either bottom as buyers step in to push price to new highs above 1.7000 or weakness will continue pushing prices lower still. I am a fan of the former scenario because I believe to get above the huge psychological level at 1.7000, $GBPUSD needs to consolidate still to lower levels. Given the price action, this may take all summer.

June 9, 2014

Today’s Appearance in FXStreet’s Live Analysis Room

It was great to be back in the #FXRoom today with Dale Pinkert. As always, we talked all things sterling including $GBPUSD, $EURGBP, $GBPCAD, $GBPAUD, $GBPNZD and $GBPJPY and the recent behavior in these low volatility markets.

As I told Dale, watch how sterling behaves this summer. I suspect we start to get more definitive moves after the summer doldrums.

Check out my previous appearances:

June 4, 2014June 29, 2014

Is There Any Correlation

Forex traders love to compare the cross currency pairs to the major currency pairs. Even those of us who are firmly in the camp that you trade each chart in and of itself, also like to conspire every now and again. The $GBPUSD has been moving higher all year, closing last week again above 1.70. The $EURGBP, however, closed back above 0.80 after already retracing 38.2% last week. Up until this week, sterling had been trading with good strength in both pairs. Two weeks ago, both $GBPUSD and $EURGBP closed above/below their respective big fig levels. Was Friday’s divergent close a signal of a decline in sterling?

GBPUSD versus EURGBP — $GBPUSD in candles, $EURGBP orange line of close price

Looking at this $GBPUSD vs. $EURGBP comparison chart, we see that these pairs tend to move inversely to each other especially during bouts of GBP strength. This rally of the last several months is no exception. With $GBPUSD already poised at the beginnings of another leg higher, the close above previous its highs is really bullish. If we see new highs in cable this week, we should see $EURGBP move towards the lows again despite the close above 0.80. Likewise, if we see new lows in $GBPUSD on a hold of 1.7050 resistance, perhaps $EURGBP confirms the Friday close and does shoot higher. Mind the calendar and trade what you see.

May 27, 2014

Cable Clues

I came out of my long position just around break even as the bears trumpet grows louder. I was bullish on $GBPUSD when price bounced off the 50% Fibonacci level last week.

But I missed these clues when price revisited former resistance at 1.6920.

On the rally last week, I failed to pay attention to the 4-hour chart. I liked how the daily chart was setting up but failed to see what the shorter- time frame was signaling. Worse yet, when price failed 1.6850 (my mental stop) I failed to exit my position. I didn’t make my mental stop a physical stop. I put too much weight in the bullish UK CPI, BoE minutes, and retail sales and not enough weight to price action.

Moral of the story: Stick to your rules for getting out of the trade. Technicals trumps fundamentals. Journal your mistakes so you’ll never repeat them.

May 20, 2014May 20, 2014

EUR/GBP On Trend

I really like this break in 0.8130 today. Last week, it was support on that break of former weekly lows at 0.8160. Because $EURGBP is good to produce fakeouts, it was the 0.8130 level that would validate and confirm a true break to new lows.

So I was long last week and we can see several spike rallies on the above 4-hour chart. But when Friday’s price action languished below 0.8160, I became convinced that the $EURGBP remained on trend and I changed my stance.

Despite lower prices in housing, the core CPI number released today hit the BoE’s “eyebrow raise” level of 2%. A 2% CORE CPI will have the BoE watching inflation closely this summer. If this number trends upward, Carney will have to readjust his rate raise timeline just stated recently in the Inflation Report last week. That could be very bullish for sterling and substantiate these new midterm lows.

May 7, 2014

UPDATE: Oh, The Possibilities

Yesterday, $GBPUSD saw a spike higher that took price to the fabled promise land of 1.7000. And necessitating an update of the daily chart published here on Monday.

May 5, 2014May 5, 2014

Oh, The Possiblities

To be bearish is to recognize that $GBPUSD is, for now, simply correcting. Given the bull trend, cable is free to tumble quite a bit if she wants to and still be a bullish bitch back to 1.7000. This large psychological level still remains on target for bulls because GBP has the economy and central bank to back up the rosy sentiment.

But consider the bearish case for the moment. How low can price really go?

The most interesting levels on this chart are those where we find confluence with major support and previous resistance levels. Take note where cable stands after this May seasonality has run its course.

May 2, 2014

May Pounds

$GBPUSD has staged such an impressive rally in the month of April. The UK fundamentals have established a trend of a solid recovery. The “misses” this week are still good numbers. GDP and the PMIs showed growth so the UK economy continues to recover. This trend has given life to sterling especially versus the USD which hasn’t managed to strengthen on the taper. I don’t know if taper is tightening but I believe it is only a matter of time before we see 1.70 in $GBPUSD. However, there are 2 things that may put that target on hold: May seasonality and a still diverging RSI. Forget May flowers. It’s all about dumping May pounds.

The RSI on cable has been diverging for weeks now. As price manages to extend the rally to new highs, there just hasn’t been much in the way of strength. With so many bulls in the market perhaps cable is running out of buyers.

The timing of a correction couldn’t be sweeter. The market has a tendency to sell cable in May. The old trading adage, “Sell in May and go away”, couldn’t be more applicable here. I talk about it every year. So to be different this year, I give you a linkfest of this May seasonality trend in $GBPUSD. More traders are talking about it this year.

May seasonality here on the blog (FaithMightFX)
End of month thoughts: Im impressed! (Piptrain)
ForexLive seasonal trades for May! (Forex Live)

March 24, 2014

The Week Ahead In Charts

Last week, Janet Yellen changed the game. This supposed uber-dove fooled us. She came out hawkish without really rattling markets. She is reigning in the USD. Contrary to those that say she’ll retract later, markets may come to find out that Yellen is serious. She is much more hawkish than the market ever expected. Can the USD strengthen on this change?

GBP/USD

$GBPUSD declined last week to 1.65 even breaking below the big psychological level on the back of Yellen’s hawkish rhetoric last week. The technical picture looks broken as cable closed the week below 1.65 for the 1st time since January. Price breaks the 61.8% Fibonacci level at 1.6467. It looks like another failed breakout on the weekly chart. Just when cable had everyone yelling for 1.70 (even yours truly), markets once again make a sucker out of everyone. If $GBPUSD is unable to find support above 1.6500, this would signal a reversal back to 1.6250. Is the Yellen spark enough to break that level? That’s the more interesting price action for market sentiment. And the Yellen FOMC just became the 1st central banks to raise interest rates AND remove QE.

EUR/GBP

The $EURGBP has managed to stage a rally higher than expected finding resistance right at the 0.8400 level. Price now remains trapped in a range between 0.8330 and 0.8400. However, it seems that the EUR will find difficulty rallying in the face of weak economic data and a still dovish ECB. If price breaks below 0.8330, losses could accelerate back to the 0.8250. But it remains to be seen how much EUR can really rally on its own fundamentals. This may be the only currency that sterling can rally against. If 0.8250 holds then we’ll be back to these levels again with resistance at 0.8400.

GBP/CAD

Canadian data continues to support a weak CAD which only continues to support the $GBPCAD at its 2014 highs. However, this pair is having a difficult time breaking any higher above 1.8650. Price continues to pivot around 1.8500. The fundamentals in this pair continue to favor the bulls. But can it really rally when GBP is weak in all the other pairs. I’m not so sure.

GBP/NZD

There has been a major breakdown in the $GBPNZD causing a reversal on the daily chart. During the consolidation of the $GBPUSD, the $GBPNZD was holding up quite well in its own consolidation. But the effects of the Ukraine-Russia conflict have sparked a rally in commodities and with it the NZD. As such, the correction that was taking place in the $GBPNZD and finding support at 1.9500 broke down further last week. Price managed to completely reverse this year’s rally moving to back to lows on the daily chart. The level to watch is 1.9100. A break below moves prices toward 1.9000 with major support at 1.8850. However, if price finds support at 1.9100 then it moves back to 1.9500. Watch out also for intervention from the RBNZ if the NZD continues to find strength.

GBP/AUD

The $GBPAUD is benefiting even more from the rally in commodities even as the Chinese economy, Australia’s biggest trading partner, continues to slow. There is also a massive head and shoulders chart pattern on the daily chart that many traders are looking to resolve to even lower levels. Based on this chart pattern, price could decline to 1.7600 which is the huge 61.8% Fibonacci retracement level on the weekly chart. Even a 400-pip decline from current levels wouldn’t change the bullish bias on the long term chart. But will the RBA allow the AUD to strengthen that much? RBA intervention is a real possibility if $GBPAUD breaks this support at 1.8000.

GBP/JPY

Despite the bull trend on the daily chart, $GBPJPY has fallen below the big psychological level at 170.00. Even while the pair is finding support at 167.50, a break below 167.30 signals a price move to 163.80/164.00 support. Only a close back above 170.00 can change this new bearish sentiment in the $GBPJPY. A move lower will be choppy as the bull trend no doubt still has many buyers with the $GBPJPY still only in a shallow retracement.