FaithMight

Category: Commentary

  • Respect The Zone

    Yesterday, the sterling market experienced a flash rally where an “erroneous” order was filled to buy yards of GBP versus EUR. This sent $EURGBP crashing down to a low of 0.8535 and the other GBP crosses spiked higher. Despite this fat finger, $EURGBP broke a huge level for the pair at 0.8570.

    EURGBP DAILY CHART

    As mentioned over 3 weeks ago,

    Of particular interest is this zone between 0.8600 and 0.8570. It has been a buy zone when $EURGBP has traded above it and a sell zone when the pair has traded below.

    When we traded below the zone yesterday on the spike lower, this zone changed from a buy zone to a sell zone.

    True to the zone, price was capped by the 0.8600 level with a high today of 0.8598 off yesterday’s 0.8535 lows. We now have follow through to the downside with $EURGBP trading at 0.8545 (as of this writing) and looking to move lower. Expect any rallies back into the zone to be met by offers unless price manages to close back above 0.8600.

    Trade what you see.

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  • Timing Is Always Important

    Sterling has completed some big time levels in the past week. $GBPUSD hit one-month highs at 1.5571. $GBPAUD broke out higher to 1.7340. And $EURGBP mean reverted back to 0.86 after hitting 5-month highs at 0.8750. I say all that so you can understand why I’m very much on the defensive into this new week. It is important to recognize how likely it is that these particular pairs start the week consolidating these major moves.

    With the $GBPUSD linked to the almighty USD, cable will certainly lead. Opening below 1.55 signals weakness that could be short-lived as the Monday session gets underway. 1.5430 resistance-turned-support and the 1.5400 50% Fibonacci level of the rally from 1.5102 to 1.5571 are the key levels of support to watch now at the market open. $EURGBP below 0.8600 has 0.8570 as key to direction. The loss of 1.6925 resistance-turned-support signals further losses toward 1.6750 in the $GBPAUD.

    If you enjoyed these major moves, take a seat back. If you missed these major moves, take a seat back. Timing is a critical factor in our trading. Be mindful of the timing: big moves, August trading, and new shifts in some of the major central banks. There is no need to rush or force trading, today, in particular. Often times, the best opportunities in the market are those you can wait on.

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  • Reversal Territory

    Last week, I started to have a more bullish stance on $GBPUSD. Price had to get back to 1.5000 or it would start to target 1.5500. Cable gave traders plenty of clues last week, however, the market waited on the BoE . Yesterday, Carney served up his own flavor of forward guidance: hard guidance complete with a dual mandate of inflation and unemployment and complete with 3 exit clauses for wiggle room. Genius. He effectively talked down rates while signaling no more QE and sterling loved it. $GBPUSD finished the business with a new high after holding the Fibonacci levels.

    GBPUSD DAILY CHART

    The inflation report caused severe volatility in the markets but despite the high volatility, cable managed to hold the 61.% Fibonacci level of the week’s rally off the 1.5100 lows with a slight overshoot and close above even the support zone (yellow). These were very bullish signals that I didn’t even trust at first because Carney was still speaking at the time. That hold though was then followed by a break above the 1.5430 highs. After breaking higher, $GBPUSD remained above 1.5430, finding support at previous resistance on a pullback before breaking to yesterday’s session highs at 1.5530.

    CABLE 60 MINUTE CHART

    All very technical and bullish action which supports the bulls’ case for new highs above 1.5750. While forward guidance may seem very bullish for sterling at the moment, it is how recent economic data lies on this forward guidance spectrum that is giving sterling strength. With solid numbers from both manufacturing and retail, traders feel now as though QE is no longer on the table. I’d say August is a bullish month for the $GBPUSD. However, if the UK economy fails to build on this tepid recovery, it could be very bearish, very quickly for cable. Remember, expectations for growth have actually been revised higher.

    Trade what you see.

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  • THE ONLY CABLE CHART THAT MATTERS

    GBPUSD 4HR NOW
    Posted 24 hours ago so not updated with yesterday’s new lows but price never invalidated the bullish outlook

    We are 20 minutes into the release and this is the only chart that matters. 1.5250 confirms to the upside. Need at least 2 15-minute candlesticks close above 1.5250 on this NFP miss. If not, then 1.5050, the 61.8% Fibonacci level, would be the level to watch.

    Read also: A GBP/USD Reversal Likely (FMFX)

  • Is GBP/USD Reversal Likely?

    Last week, the $GBPUSD has signaled a reversal higher on its small breakout above the 61.8% Fibonacci level as it rallied off the 1.4813 lows.

    GBPUSD DAILY

    While I expected a rally to continue higher from 1.5400, the diverging RSI at those highs played out into weakness that dissolved to new lows yesterday at 1.5120.

    GBPUSD 4HR MONDAY

    Then bulls stepped in huge yesterday at the 50% Fibonacci level of the corrective rally.

    GBPUSD 4HR NOW

    Now what? Because of the long term bear trend, sellers got confident and forgot about that breached 61.8% Fibonacci level of last week. The BoE has stayed pat on monetary policy again this month with no statement released hereafter. The market reaction to this BoE monetary policy decision has been positive for GBP. With the hold of this 50% Fibonacci level, the breach of the 61.8% Fibonacci level on the daily chart and today’s diverging RSI at the lows, I see a rally in $GBPUSD back to 1.5500. A daily close above 1.55 gives an early signal of a reversal in the long term bear trend. However, bears prevail on a move below 1.5050.

    Trade what you see.

  • GBP/USD Ahead Of Key Data

    The $GBPUSD has met all expectations here with its move right into the 61.8% Fibonacci retracement level of the latest bearish wave.

    GBPUSD 4HR CHART

    The market now waits on the UK GDP release. The expectations in the market are high for a positive beat which actually increases the downside risks in cable. If GDP disappoints, I believe the rally will be over. The technicals support a resumption of the bear trend with the 61.8% Fibonacci level capping the rally so far and a diverging RSI at these new highs. However, an upside beat or even an inline print will fuel this rally right back to 1.5500. A daily close above this psychological level will mark the beginnings of a reversal in the $GBPUSD.

    Trade what you see.

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    UPDATE:

    I corrected my thoughts on an upside or inline GDP print in my interview chat with FXStreet (at the 3:00 mark).

  • Decision Time For EUR/GBP

    The $EURGBP is at a crossroads at this 0.8600 level.

    EURGBP daily chart

    Of particular interest is this zone between 0.8600 and 0.8570. It has been a buy zone when $EURGBP has traded above it and a sell zone when the pair has traded below. As the $EURGBP entered the zone last week, it was met with bids as the pair closed the week at 0.8609. Now as trading kicks off in this new week, price has slipped back into this zone. Where will $EURGBP go from here? With a very light economic calendar this week, this pair will be particularly driven by the UK GDP and German IFO releases. Either the bulls return or the bears step in.

    Trade what you see.

     

  • EUR/GBP Reversal At Hand

    I hardly think so. But yesterday I read 2 analyses on $EURGBP that spelled out opposing views on the future direction of the pair. And I think, as traders, it is always important to consider both sides of a trade no matter your own opinion on price action.

    The Bear Case

    EURGBP monthly chart

    Despite the recent new highs (today at 0.8710), price does remain in this downward channel that has been forged over the past 4 years. The fundamentals weakly suggest that the UK economy is doing relatively better than the rest of the EU economy. The bears do have a case especially at these levels.

    The Bull Case

    After trading in a range for over 10 weeks, the $EURGBP broke that range to the upside. Typically, a breakout ensues in the direction of the break when there has been a well-established range. And the $EURGBP did break out to a high today at 0.8710. However, the Bank of England minutes of Governor Carney’s 1st meeting revealed a much more hawkish central bank. Additionally, UK unemployment data came out much stronger than expected. As such, the $EURGBP has pulled back into the Fibonacci levels of the rally after the range break.

    EURGBP DAILY CHART

    Even on this pullback, the bullish picture remains intact. The market now awaits the testimony from Fed Chairman Ben Bernanke. Dovish comments from Bernanke could support the EUR and push the pair back above 0.8700. However, if the pullback extends beyond the 61.8% Fibonacci level, only a daily close below 0.8574 would indicate bearish price action in the short term targeting 0.8500.

    Trade what you see.

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  • Sellers Strong But May Need More Time

    The $GBPUSD rallied back to the support/resistance zone between 1.5230-70. But the rally exhausted far earlier than expected. In fact, offers stepped in ahead of the zone as price topped out at 1.5220 before falling back to 1.5100 level to end the week.

    Now at the start of the week, sellers have taken the $GBPUSD below the 1.5075 support level. The early morning bounce in the European session was capped by the former support level and led to further losses to  1.5027 lows.

    GBPUSD 4hr chart

    However, the psychological level at 1.50 is always the big obstacle for cable when we trade at these levels. With the disappointing US retail sales sending $GBPUSD higher above 1.50 (to 1.5115 so far), it is likely now that price may, in fact, rally higher back to 1.5230-70 support/resistance zone and even higher into the Fibonacci levels on the 4 hr chart. This failed attempt lower is likely to be met with more fuel for a corrective rally to new highs this week. Of course, this scenario largely depends on how the market reacts to the slew of US and UK economic data including Bernanke’s testimony before Congress and the release of the Bank of England meeting minutes.

    Trade what you see.

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  • Bernanke Talks Down USD

    Bernanke gave a speech yesterday afternoon commemorating the 100-year history of the Federal Reserve. However, it was the Q&A portion of the program where Bernanke revealed that the $FED monetary policy could remain accommodative far long after the 6.5% unemployment rate (forward guidance) was reached. I, myself, was not expecting the $FED chair to be as dovish as he was. US economic data has been fairly positive. The US NFP released Friday was a surprisingly  robust report. The economy seems to be going in the direction the $FED wants and expects it to go. Nevertheless, Bernanke communicated that monetary policy will remain accommodative even as the economy seemed to improve.

    From there, the USD was pummeled. $GBPUSD moved nicely from 1.4910 to 1.5050 during Bernanke’s Q&A. Then in a blink of an eye price action jumped to new highs at 1.5193. It was incredible to watch in real-time.

    GBPUSD 4HR CHART

    Now that $GBPUSD has taken out the Fibonacci retracement levels of the latest bearish wave, all eyes have returned to the 1.5230-70 support-now-turned-resistance zone (yellow). The 50% Fibonacci level of the entire collapse from 1.5750 to 1.4813 lies just above there at 1.5280. Even if price manages to rally above 1.5300, cable remains bearish until there is a daily close above 1.5500. We can expect rallies from current levels to be met viciously with offers. Given capital flows, it makes more sense for swing shorts to come in at 1.5250 and higher in order to take out the 1.4813 lows. Thus, I believe we still have some more $GBPUSD rally left in the very short term.

    Trade what you see.

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