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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.

I’m LIVE!

What a professional journey it has been for me these past 3 years. When asked to do a personal blog, I passed on this opportunity when first presented to me almost 9 months ago. I didn’t think myself ready or even worthy to present ideas under my own brand. Tweeting is one thing. Even being an editor of a blog is a very different thing. I can hide (more or less) amongst other traders and opinions. But under my own blog, it’s just me all the way out there. I had done it before but on StockTwits it’s just a completely different level of authority and respect so I had to be sure that I could represent.

Thankfully, opportunity knocked twice and I was a fool only once before. I snapped on it this time. I put things in place and finally here we are. It’s been quite a journey. From trader to tweeter to editor and now my own personal forex blog. Thank you StockTwits! Let’s do this!