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Author: @faithmight

Lydia Idem is an investment advisor who has been an investor and trader for 23 years. She has been a special guest on TD Ameritrade Network and Benzinga’s #PreMarket Prep Show; featured in FORBES Magazine and CNNMoney; and co-author/contributor to The StockTwits Edge and Trading: The Best of The Best. In 2014, she launched FM Capital Group LLC, a registered investment advisory firm serving people of color. Lydia was recently named #22 of the Twitter Accounts Investors Need to Follow in 2017 and #3 of the Top 10 Women To Follow In Finance for 2015. Lydia has a Master of Science in Management (Georgia Institute of Technology) and a Bachelor of Science in Computer Science (Vanderbilt University). Follow me on Twitter: @faithmight Follow me on Instagram: @faithmight Follow me on Facebook: fb.com/fmcapitalgrp
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Sterling Digest, 9 July 2013: the Carney effect

Mark Carney face on 20GBP note
Too soon? Or not soon enough?

Last week, on the 4th of July, Mark Carney made his 1st move as Bank of England governor. While the BoE did not move on monetary policy, it was Carney’s introduction of forward guidance that sent sterling tumbling across the board. Under the Carney effect, GBP has been unable to recover as the fundamentals have completed shifted in a very unexpected manner. Many market participants expected Carney to wait until next month to bring any changes to monetary policy. Carney’s big surprise  should bring sterling to new lows across the board during this 2nd half of the year. The Carney effect will only be exasperated by poor economic data as we saw today and merely slowed, not reversed, by any upside surprises in data.

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The Range Breaks

Last week the $EURGBP finally broke the range. It broke that range to the upside and confirmed with a close above the 0.8600 range top.

EURGBP DAILY CHART

$EURGBP opens the new trading week trading above 0.8600 level for the first time since March. This is a bullish move with a potential move to 0.8750 now in the works. Any dips should be supported by the former 0.86 range top. A daily close below 0.8570 invalidates this bullish setup.

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Where Does It Go From Here?

The $GBPAUD finally staged a long overdue correction. Now what? Will the pair follow the AUD lower and resume its rally or will it follow the GBP lower?

GBPAUD 4HR GBPAUD DAILY

Given the Fibonacci levels on the daily chart and the diverging RSI on the 4hr chart, it looks highly probable that the pair resumes the bull trend. However, be aware of the Carney effect.

 

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Carney Makes The 1st Move

fireworks from flickr
Carney set off the fireworks early

New BoE Governor Mark Carney surprised markets today as he made his 1st move on British monetary policy. Instead of the traditional silence on monetary policy hold, Carney not only made comments but gave a full statement to introduce the markets to forward guidance.

At its meeting today, the Committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation contained in the May Report.  The significant upward movement in market interest rates would, however, weigh on that outlook; in the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.

The latest remit letter to the MPC from the Chancellor had requested that the Committee provide an assessment, alongside its August Inflation Report, of the case for adopting some form of forward guidance, including the possible use of intermediate thresholds.  This analysis would have an important bearing on the Committee’s policy discussions in August.

Not only has Carney told the market not to expect interest rate rises, he also telegraphed a possible move in policy as soon as next month. And don’t expect positive economic data to stop them either. This make the August BoE meeting even more important and all eyes have already moved towards expectations for it. We can see that already in today’s price action. Pairs that have enjoyed breakouts like the $GBPAUD, $GBPNZD, and $GBPCAD are seeing long overdue corrections. The $GBPUSD remains entrenched in its bear trend and threatens to break down to new lows. A breakout in the $EURGBP seems imminent.

But US markets are on holiday today so the reaction has actually been muted if you can believe it. Expect the real fireworks when US traders return to all this forward guidance (the ECB is announced forward guidance today as well) and the US NFP release. Happy 4th!

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GBP/AUD Tests The Top

$GBPAUD ripped higher on the back of a AUD weakness-GBP strength double whammy. During the Asian session overnight, the Reserve Bank of Australia Governor Glenn Stevens jawboned the Aussie off a cliff. In fact, the market is now pricing in an increased 60% chance of a RBA rate cut in August. As a result, the AUD was throttled across the board allowing the $GBPAUD to rally to 1.6750. Then UK services PMI surprised to the upside and further carried the $GBPAUD to new highs at 1.6858.

GBPAUD 4hr chart

With this news-induced rally, one would anticipate that the $GBPAUD would have broken to new highs on the daily chart. After all, the fundamentals just laid out should support such a breakout. The $AUDUSD certainly did break down to lows not seen in 3 years. The $GBPUSD found a bottom at new lows to break above 1.6250 resistance that had capped price all week. And yet we find the $GBPAUD struggling to take out the top at 1.6877. Perhaps the market awaits the BoE decision tomorrow. Perhaps the market will wait for the 4th of July holiday to pass. Whatever the reason, bulls should be cautious. This rally is looking exhausted with the weekly chart is still working out overbought conditions. All of which makes the $GBPAUD very toppish at these levels.

 

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Will Carney Surprise Us?

This Thursday, the Bank of England (BoE) will deliver its first interest rate decision under Mark Carney. It is widely believed that the BoE will hold monetary policy given that Carney officially stepped into office just 4 days prior. However, Carney could surprise us.

While his official start date was yesterday (July 1), Carney completed his tenure with the Bank of Canada on June 1st. So hypothetically he could have started work on the UK for 30 days already. He certainly has an opinion on British monetary policy (seen here). And the BoE has a good track record for surprising markets.

But enough with the musing. Either way Thursday’s decision goes, the $GBPUSD has resumed its bear trend. After falling to the critical long term support zone between 1.5270 and 1.5230, price fell below it to end the month of June. Bounces have been capped at 1.5250 and price has since fallen to new lows today at 1.5136. Though still in this upward channel, cable is poised to break to the next level of support at 1.5075. If price breaks lower, all eyes are the big psychological level at 1.5000. Given the respect of the Fibonacci retracement levels, cable is still on track to break to new lows below 1.4830.

GBPUSD daily chart

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Sterling Digest, 1 July 2013: dawn of the Carney Era

Mark Carney at the Bank of England
New Bank of England Governor Mark Carney

This is an exciting time for sterling traders as we lay witness to the dawn of a new era. Mark Carney takes the helm today as the new Bank of England Governor. The market, as well as some top officials in the UK government, have been widely anticipating this transition since it was first announced last November. Former Governor Mervyn King has led the BoE my entire forex career. I will miss the always predictable market reaction to King’s speeches (King speaks, sell sterling) but it seems the British are ready for new monetary leadership. Though Carney has set market expectations as a GBP bear, prices will not plunge just because he steps into office. The market will size him up first with plenty of price fluctuations and positioning in anticipation of his 1st interest rate announcement and inflation report. Will the Carney Era bring sterling strength or weakness? British prosperity or recession? In 5 short years, the markets will have their verdict.

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The One That Got Away

The $EURGBP has been rangebound between 0.8600 and 0.8470 for 10 weeks. While impressive, this is not uncharacteristic of this currency pair. When it fell below 0.8500, it lingered at the bottom of the range for 3 days. I expected a continuation to the downside after the 3rd day of still pivoting around, and mostly below, 0.8480. I bailed out of a long position hours before the $EURGBP finally broke to the upside respecting the range.

EURGBP daily chart

Now, the pair is at the top of the range moving as high as 0.8575. As long as price closes daily below 0.8600, the range remains intact and we’ll see a move back to 0.8500. This time, I will be more patient.

 

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GBPAUD Finds A Top

The $GBPAUD breakout has been epic. It was one of those amazing rides that you only participate in in portions. There is not a trader who captured every single pip of this move. There are many who did, however, rake in a killing take portions of this gigantic trend wave that broke out to new 2-year highs.

GBPAUD WEEK CHART

Looking at the weekly chart, it is interesting to note that this is only a 1st bullish wave. Now after 10 bullish weeks, we are starting to see a pullback. The RSI is severely overbought and has been for several weeks now. So a top was not only inevitable, it was necessary.

GBPAUD 4HR CHART

Watch 1.6380 today. Price has bounced from this support level before. If we can get below 1.6380, then price will move toward 1.6270, the 50% Fibonacci level of June’s rally and previous support. From there, price will confirm this new AUD bear trend or allow for a deeper correction still.

 

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Sterling Digest, June 11 2013: sterling recovery

Cartoon from Leadbelcher on flickr
Was King right? We’ll never know.

Sterling has broken out across the board to new highs in an amazing display of strength. Last week’s BoE decision to keep monetary policy unchanged was a huge boost for sterling. It was also the last BoE meeting under Governor Mervyn King. King has drawn criticism from many market participants especially since the dawn of the 2008 financial crisis. The irony, however, is that the UK economy may be enjoying a recovery just as he retires and steps down.

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