My first reaction was that market doesn’t care about my take so why would I have one. Each day, I attempt to approach the markets with humility because I don’t want to fall in love with a bias that will beholden me to a position. But if I’m really honest with myself, of course I have a take on the referendum!
I don’t think the Scots will go through with it. And if I’m right the market will flail about for a few hours, or days, and go back to trading the status quo. And the stays quo is that the economy is not as strong as it was a year ago. Wage growth, the new forward guidance, is tepid at best. No matter what Carney says, I don’t think he can convince a majority of the MPC to raise internet rates until there is more proof of inflation beyond house prices. In fact, the weakness in commodities actually buys the BoE some time as energy prices are even less of a drag on inflation than they’ve ever been before.
If the Scots prove me wrong and vote in independence, then the pound sterling will weaken fast and sharp across the board. A currency crisis will literally materialize in a matter of hours as markets deal with a sudden GBP currency union or a new Scottish currency.
So, in conclusion, my take is bearish GBP. But I know the markets can do whatever they want to do. So whatever you do with this “insight”, please do mange your risks appropriately and trade what you see.
Of course, the only thing still on the wire is the Scottish referendum. But the Scots stand to rock the world as secessionists everywhere get emboldened by the possibility of independence. Naturally, the referendum polls are just as emotional as the voters they reflect. Sterling spiked to new weekly lows across the board as the Yes vote took lead last weekend. Then the No vote moved ahead as the trading week unfolded and sterling surged big time right back to familiar highs in all the GBP pair majors. Headed into the actual election this week, expect price to actually weaken as buyers take profit and sellers take advantage of the recent highs. Even with the Bank of England set to make a monetary policy announcement, all eyes this week are on the referendum vote. Friday, the day after the vote, will be the most interesting trading day of the week and may set the tone for the rest of the year.
Scotland and Zanzibar share a related history and perhaps a smilier fate. (Africa Is A Country)
The UK has issued a reminbi-denominated bond, only the 2nd eurobond in its history. It’s has to pay for this divorce somehow. (Xinhua)
Why everyone in the world will be listening to Yellen this week. (Business Insider)
There are 5 lessons GBP traders can learn from the Quebec referendum (Forex Live)
Anybody remember Mark Carney saying something about raising interest rates? No? We didn’t think so. (Bloomberg, FX Agenda, Forex Live)
Remember this? The inverted head and shoulders pattern is messy but it is underway. As recent as last week, and certainly for the past 5, euros were sold hard to new lows. The ECB nor economic data out of the periphery EZ countries gave investors much reason to hold the currency versus the pound sterling. However, now that QE has started in the Eurozone, the certainty of that dovish cycle is everything right now to the uncertainty wreaking sterling right now.
When we first looked at the reversal potential in $EURGBP, price targeted the 38.2% Fibonacci retracement level near 0.8100. However, now that the referendum polls have begun to spook markets and economic data is deteriorating, price has the potential to challenge the former weekly lows at 0.8160.
Another slow session, another day this remains true. In order to really belabor the point, I wanted to post the price action that has developed in the past week. The chart pretty much says it all.
A hold below targets the bottom of the chart long term. This 1.6600 is nearly the 61.8% Fibonacci level on the weekly chart that was broken last week – the ultimate perversion of any long-running trend. The fact that the range top is this critical support level is not lost on me. But there are still bulls out there. Given the breakout rally over the last year, I understand the sentiment. And so the hold below 1.6600 has been met with just enough dip buyers to keep price supported. If strength does build above 1.6600, then a hold above it starts a correction that makes 1.6650 a key resistance zone. If this is really a reversal, price will hold below 1.6650 on any moves to the upside above 1.6600. If bulls really do have some mojo, we’ll see price break higher to 1.6750.
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So I bit the bullet, produced the paperwork, passed the Series 65 and raised an advisory firm – FM Capital Group LLC. I want a company that understands that in order to grow wealth it is necessary to allow you to keep as much of your capital gains as possible. No account minimum. Everyone has to start somewhere. We are also a firm that takes the time to educate. That is a natural extension of the trading tweets and blog posts I have been producing the last 5 years on Twitter. My dream to give individuals access to their own wealth who have traditionally never had access before. We won’t turn away an inquiry, we are specifically targeting people of color. As a woman of color, I know firsthand that we have a significant amount of wealth harnessed in all the wrong ways. I am on a mission to change this trend and feel very well positioned to do so.
So thank you again to all that follow me to seek knowledge. My hope with FM Capital Group is that I can provide the most comprehensive help that you need with the understanding that you may not even know the full extent of what you need. I’m ready to help you and that excites me!
Do you see what I see? Despite Draghi’s best efforts, the $EURGBP continues to hold support. Remember the importance of 0.7920. This week, buyers have supported euro at this level. The first resistance is the neckline at 0.7982 but 0.8000 is decision-making time.
Now my question to my chartist friends, what is the target on a daily chart inverse head and shoulders?
When traders are buying insurance on currency, you know things just got real
The markets have known about the upcoming Scotland referendum for months now. And it was largely ignored because it didn’t seem like anything could break up this unhappy union. Now GBP sterling is looking like a currency union all out of nowhere. No one calculated that kind of government risk from the Old Lady. The market has been taken for a loop. This extreme market reaction may only the beginning because it is yet another changed expectation in sterling’s long-term sentiment. Traders are starting to believe that the market could get more volatile still. What I had thought was a non-event just months ago has thrown another interesting fundamental twist to the landscape. A currency crisis could give this reversal some real legs to undo last year’s sterling rally.
The options market saw this drop coming last week. (WSJ)
The GBP has experienced a selloff that I believe may be the beginning of a reversal. Data misses at a time when the market has gotten used to better-than-expected data is probably the biggest reason for a reversal to take hold. You can look at the market’s reaction to good news the past 2 days versus yesterday’s manufacturing miss in the chart below. The Bank of England’s hold on monetary policy today was expected to be a non-event. They delivered. Consequently, they have given markets an excuse to sell pounds short term. Traders are already looking ahead to the August Inflation Report that Mark Carney will deliver next week. If BoE telegraphs concern for a weaker economy going forward, we could see sterling really start to give back the gains of the past year.
Even with $GBPUSD now trading well below 1.7000, I came into the week skeptical of this reversal. So I’ve been watching this week. Not much tweeting. Much more watching. What has developed is $GBPUSD having a hard time getting above 1.6880. This difficulty has given more evidence to the huge support level this level really was. It wasn’t just a 61.8% Fibonacci level. It is a level where supply meets demand. It is a level where buyers and sellers alike must make a decision. It looks like sellers are now in control with the break last week and the hold this week of 1.6880. And those capital flows are moving throughout the market as we see selloffs in the $GBPNZD, $GBPCAD and $GBPJPY. I expect bounces to be met by offers at 1.6880 and, on a break higher, at the more obvious 1.7000 psychological level.
Back on with Benzinga, I mentioned mental stops quite a bit in my segment. But mental stops are a topic that deserves a little more explanation than I gave on the show. We all know what stop orders are. If you don’t then stop reading now and read this. We call them hard stops. I’ve always used them in my trading. Always. Then some years ago, Raghee Horner said something about stops that really resonated with me.
“If your stops are not set, your broker will never know about them.”
While that statement did resonate with me, I didn’t really understand why she said it until recently. I believe the reason now is high frequency trading (HFT). Undoubtedly, there is HFT in the forex markets now too. If the broker-dealers can see your orders, you better believe the algos, black boxes, dark pools and other sinister machines see them too. Sound trading plans, which dutifully included hard stops, have been chopped to death in these markets. And I’m not the only one who thinks so. Pro veteran trader Peter Brandt wrote about this some years ago and the change he made to mental stops in order to remain competitive. However, despite these pros’ thoughts, I still used hard stops in my trading. Using bracket orders (limit orders in which both or either the stop loss and target limit are set too), stops were placed as soon as I entered a position and adjusted to break even once the trade was in the money.
No matter the basis, use stops in your trading
This sounds like a sound and prudent strategy. However, it was not yielding the results that they once were. So, very recently, I made the move to mental stops as well. It wasn’t until the Benziga show appearance that I reflected on how this trading strategy is working for me and what it might mean for newer traders.
Using mental stops mandates a disciplined approach in your trading. That is why novice traders cannot use them. As a novice, one is training to be disciplined in developing a trading plan and system. Once that hurdle is crossed, the newbie is then training to properly execute that plan and manage the emotions and ego that comes with trading in the markets. The practice of determining risk and sticking to exits is learned very practically using stop and limit orders.
Until your trading psychology is tight, I do not think you can successfully employ mental stops. Again, if you are a novice trader or a trader struggling with your mental capital, use the hard stops. Using mental stops does not mean we are no longer using stops in our trading. On the contrary. If you use a mental stop, you already know the level at which your trading plan is wrong. It’s just not being telegraphed to the market. Rather, we want the market to move as it should without the temptation to run orders that the HFT ilk is fond of doing. Mark the stop loss level on your charts and develop a rule for when you will manually come out of the trade. Will you get out on a break of the level? On the close? After a couple hours? A couple days? You will need to make that determination way before you think about using a mental stop in your trade. Mental stops can only be utilized within a well-defined trading plan. Fail to plan and you ultimately have plans to blow up your account. Be smart.
Headed into the non-farm payrolls, $GBPUSD has put in a significant correction back to 1.6822. Huge level. Not only is the 50% Fibonacci retracement level, it is also a former resistance level now serving as support.
While the $EURGBP is staging a corrective bounce, it is still contained by its former zone of support now acting as resistance.
The market’s reaction to the NFP may determine a new direction in sterling. Keep an eye on both pairs into this morning’s news release. Trade what you see.
