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Category: The Sterling Digest

The Sterling Digest now as a weekly summation of news to consider when trading GBP pairs, in particular.

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Sterling Digest, April 23 2013: bears in bulls’ clothing

Bears sitting for a portrait. Painter paints a bull.
Pound Sterling

It’s the last full week of April. Then the bears come in. “Sell in May”, as they like to say. Sterling has been enjoying a nice corrective rally all month. I championed the new bullish sentiment on the blog here and here. But the bull shine could be starting to fade. $GBPUSD has many traders calling a top. Fitch downgraded the UK economy late Friday and $GBPUSD opened the week to drop to 1.5200 while $EURGBP spiked to 0.8590 highs. However, the weakness has been short-lived. Once the Monday trading session commenced, sterling found its legs rallying across the board. $GBPAUD staged a breakout in Monday trading. There are some reasons. Fitch’s downgrade is old news. Poor economic news news lately is not translating to much lower prices. With the economic calendar very light out of the UK this week, sterling could be a mixed bag to finish the month.

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Sterling Digest, April 16 2013: terror attacks

Iron Lady rightfully(?) kicking the King of Capitalism

What happened Monday? What a trading day. Commodities fell off a cliff in a real scary way. $GBPAUD, $GBPNZD, and $GBPCAD rallied over 200 pips in yesterday’s trading session as those commodity dollars took a major hit along with $GLD, $SLV, and $CL_F. It was incredible. Then bombs exploded later Monday morning during market hours in Boston. Another terrorist attack in the United States. The USD rallied slightly on the news as $GBPUSD tumbled below support but in today’s trading session cable looks bullish again. The markets feel a bit more stable today as the sterling continues to firm except versus the euro. $EURGBP has taken out major resistance at 0.8570 as it has rallied to new highs so far today at 0.8582. What is the world coming to?

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Sterling Digest, April 8 2013: freedom to grow

Political cartoon from The Independent. Bust and Bust for sale
This may not work but neither will austerity

As expected last week, sterling has strengthened though mostly on the back of weaker fundamentals elsewhere in the world. The weaker-than-expected US jobs report helped $GBPUSD surge above 1.5250 resistance that had capped rallies since February. The weak Canadian jobs report also sent $GBPCAD to new highs at 1.5650 also not visited since February. The $GBPAUD reached new highs at 1.4825 on the back of a still dovish RBA. The only sterling pair that hasn’t found GBP strength is the $EURGBP as the EUR finds a Cyprus bottom for reasons outlined well in the linkfest below. It’s a light calendar this week with all eyes on Wednesday’s FOMC minutes release.

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Sterling Digest, April 1 2013: the quarter for sterling

A handful of money, UK sterling coins
Start the new quarter with a handful of sterling

Happy new quarter! The 1st quarter of 2013 has seen US and UK equity markets rally into new highs; the euro rally until Cyprus hit; and sterling plunge to new lows all the while. As the new quarter gets underway, it is an interesting time to think about sterling rally. Since Cyrpus has undermined confidence in the European banking system, the $EURGBP has fallen accordingly. Likewise, the $GBPUSD, $GBPAUD, $GBPNZD and $GBPCAD are failing to move lower after hitting new yearly lows. It stands to reason that this next quarter could bring a sizable correction to GBP weakness as sterling enjoys safe haven flows and a central bank on hold until its new governor takes the helm.

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Sterling Digest, March 26 2013: intriguing strength

front page of City AM March 21 2013
Perfect environment for a weaker GBP

Thanks to Cyprus, sterling managed to catch a bid last week on European haven flows. To start this new trading week, however, GBP has traded weak with $GBPUSD, $GBPAUD and $GBPNZD all off their highs of last week. Naturally, sterling still remains stronger versus the euro as the Cypriot crisis still remains. With a relatively light news week from the UK, look for sterling to remain mixed as it gains strength against the euro and possibly the USD but remains weaker against the commodity dollars.

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Sterling Digest, March 17 2013: dangerous precedent

cartoon depicting Cyprus bailout
Very dangerous indeed

Cyprus has put the PIIGS front and center again just when market participants thought that ship had finally sailed. Citizens of the PIIGS, in particular, should rightfully be concerned about the possible seizure of their bank accounts. Furthermore, if you have money parked in any country that was on the brink of a bailout, you are headed to the ATM right now and to the teller window come Monday. So what does this have to do with sterling? Just when it looked like the weak GBP trend would resume in this new trading week, expect sterling to strengthen on the back of safe haven flows behind the USD, CHF, and JPY. While this is certainly the case for the Monday open, will this new safe haven status really last? With all the news from the UK this week — CPI, BoE minutes, unemployment report, and retail sales — one can have her doubts. Not to mention the RBA and FOMC minutes releases too. Remember it is market reaction to the news, not the news itself, that dictates price action. This week will be no different.

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Sterling Digest, March 11 2013: the charts that worry

Various denominations of GBP in regular visible light
Price doesn’t look this pretty

Sterling did produce a correction rally last week as $GBPUSD made a high at 1.5200, $GBPAUD as high as 1.4850; $GBPNZD as high as 1.8350; $GBPCAD as high as 1.5650; and $EURGBP as low as 0.8590. These rallies, for the most part, kept GBP below previous long term lows. This technical development was certainly the case for the $GBPUSD, $EURGBP, and $GBPNZD where all pairs have broken long term support levels. While the BoE did not move on additional QE, the surprising development of the week was the BoE’s possible change to a dual mandate to combat both inflation and unemployment. With this new trading week very light out of the UK, expect sterling price to continue to weaken across the board. While US news and the RBNZ rate decision will influence those respective currency pairs, the protocol with sterling is clearly to sell the rallies.

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Sterling Digest, March 4 2013: more stimulus possible

Financial Times front page on September 17 1992
Could history repeat?

As expected, sterling continued its descent and dropped to new lows last week as traders began to short GBP en masse. However, when much-lower-than-expected UK manufacturing PMI failed to produce a selloff on Friday, it became clear to me that perhaps sterling may be due for a bit of a correction. This week, traders are treated to rate decisions from the Reserve Bank of Australia, Bank of Japan, Bank of Canada, Bank of England and the European Central Bank. With poor economic data in the UK and the revelation of more MPC members in favor of additional monetary stimulus, the BoE could surprise the market with more accommodative policies. Any dovish announcement will see sterling break to new lows while a hold on policy could fuel a GBP corrective rally. It should be an interesting week.

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Sterling Digest, February 25 2013: hardly at extreme levels

KAL Cartoon in The Economist
Put GBP on the roof and you illustrate current sterling sentiment in the market

Sterling weakness accelerated last week and culminated in the UK loosing its AAA credit rating on Friday. Now that monetary policy is dovish, economic activity nil, and credit rating downgraded, sterling has entered this new week of trading with a trifecta of negativity. And yet traders are hardly short GBP yet. In fact, I don’t think we will have reached extreme levels of short GBP trades until, $GBPUSD trades at 1.4750, $EURGBP at 0.8900, $GBPAUD trades below 1.4500, $GBPCAD below 1.5400, and $GBPNZD below 1.8000. Until price gets to those levels, expect corrections to be short-lived as the weak sterling trade gains momentum.

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Sterling Digest, February 18 2013: serious shifting

New Design of UK Pound Sterling Coins, Flickr
GBP shifts bearish but not everyone agrees

One of the most interesting bits of news last week that went largely unnoticed was Ray Dalio’s positive take on sterling. Talk about a bold, bullish call in the face of new lows and poor fundamentals. While the week ended with sterling rallying on profit-taking, GBP pairs are still very bearish. $GBPUSD, in particular, is especially vulnerable as it finally shifts below the major 1.5500 level. The $EURGBP is the most bullish GBP pair but that comes at the whim of a weak euro. However, the market hasn’t quite made that weak euro shift yet. And the $GBPNZD has staged a breakout to the downside after 2 years of consolidation. With the BoE minutes and unemployment numbers the only UK releases this week and profit-taking already underway, watch for GBP pairs to shift back to their long-term bear trends or move higher still on more price correction.

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