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Oh, The Possiblities

today's tweet

To be bearish is to recognize that $GBPUSD is, for now, simply correcting. Given the bull trend, cable is free to tumble quite a bit if she wants to and still be a bullish bitch back to 1.7000. This large psychological level still remains on target for bulls because GBP has the economy and central bank to back up the rosy sentiment.

But consider the bearish case for the moment. How low can price really go?

GBPUSD DAILY CHART

The most interesting levels on this chart are those where we find confluence with major support and previous resistance levels. Take note where cable stands after this May seasonality has run its course.

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May Pounds

$GBPUSD has staged such an impressive rally in the month of April. The UK fundamentals have established a trend of a solid recovery. The “misses” this week are still good numbers. GDP and the PMIs showed growth so the UK economy continues to recover. This trend has given life to sterling especially versus the USD which hasn’t managed to strengthen on the taper. I don’t know if taper is tightening but I believe it is only a matter of time before we see 1.70 in  $GBPUSD. However, there are 2 things that may put that target on hold: May seasonality and a still diverging RSI. Forget May flowers. It’s all about dumping May pounds. 

 GBPUSD WEEKLY CHART

The RSI on cable has been diverging  for weeks now. As price manages to extend the rally to new highs, there just hasn’t been much in the way of strength. With so many bulls in the market perhaps cable is running out of buyers.

The timing of a correction couldn’t be sweeter.  The market has a tendency to sell cable in May. The old trading adage, “Sell in May and go away”, couldn’t be more applicable here.  I talk about it every year. So to be different this year, I give you a linkfest of this May seasonality trend in $GBPUSD. More traders are talking about it this year.

 

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The Week Ahead In Charts

Last week, Janet Yellen changed the game. This supposed uber-dove fooled us. She came out hawkish without really rattling markets. She is reigning in the USD. Contrary to those that say she’ll retract later, markets may come to find out that Yellen is serious. She is much more hawkish than the market ever expected. Can the USD strengthen on this change?

GBP/USD

$GBPUSD declined last week to 1.65 even breaking below the big psychological level on the back of Yellen’s hawkish rhetoric last week. The technical picture looks broken as cable closed the week below 1.65 for the 1st time since January. Price breaks the 61.8% Fibonacci level at 1.6467. It looks like another failed breakout on the weekly chart. Just when cable had everyone yelling for 1.70 (even yours truly), markets once again make a sucker out of everyone. If $GBPUSD is unable to find support above 1.6500, this would signal a reversal back to 1.6250. Is the Yellen spark enough to break that level? That’s the more interesting price action for market sentiment. And the Yellen FOMC just became the 1st central banks to raise interest rates AND remove QE.

GBPUSD WEEKLY CHART

EUR/GBP

The $EURGBP has managed to stage a rally higher than expected finding resistance right at the 0.8400 level. Price now remains trapped in a range between 0.8330 and 0.8400. However, it seems that the EUR will find difficulty rallying in the face of weak economic data and a still dovish ECB. If price breaks below 0.8330, losses could accelerate back to the 0.8250. But it remains to be seen how much EUR can really rally on its own fundamentals. This may be the only currency that sterling can rally against. If 0.8250 holds then we’ll be back to these levels again with resistance at 0.8400.

EURGBP WEEKLY CHART

GBP/CAD

Canadian data continues to support a weak CAD which only continues to support the $GBPCAD at its 2014 highs. However, this pair is having a difficult time breaking any higher above 1.8650. Price continues to pivot around 1.8500. The fundamentals in this pair continue to favor the bulls. But can it really rally when GBP is weak in all the other pairs. I’m not so sure.

 GBPCAD DAILY CHART

GBP/NZD

There has been a major breakdown in the $GBPNZD causing a reversal on the daily chart. During the consolidation of the $GBPUSD, the $GBPNZD was holding up quite well in its own consolidation. But the effects of the Ukraine-Russia conflict have sparked a rally in commodities and with it the NZD. As such, the correction that was taking place in the $GBPNZD and finding support at 1.9500 broke down further last week. Price managed to completely reverse this year’s rally moving to back to lows on the daily chart. The level to watch is 1.9100. A break below  moves prices toward 1.9000 with major support at 1.8850. However, if price finds support at 1.9100 then it moves back to 1.9500. Watch out also for intervention from the RBNZ if the NZD continues to find strength.

GBPNZD WEEKLY CHART

GBP/AUD

The $GBPAUD is benefiting even more from the rally in commodities even as the Chinese economy, Australia’s biggest trading partner, continues to slow. There is also a massive head and shoulders chart pattern on the daily chart that many traders are looking to resolve to even lower levels. Based on this chart pattern, price could decline to 1.7600 which is the huge 61.8% Fibonacci retracement level on the weekly chart. Even a 400-pip decline from current levels wouldn’t change the bullish bias on the long term chart. But will the RBA allow the AUD to strengthen that much? RBA intervention is a real possibility if $GBPAUD breaks this support at 1.8000.

GBPAUD WEEKLY CHART

GBP/JPY

Despite the bull trend on the daily chart, $GBPJPY has fallen below the big psychological level at 170.00. Even while the pair is finding support at 167.50, a break below 167.30 signals a price move to 163.80/164.00 support. Only a close back above 170.00 can change this new bearish sentiment in the $GBPJPY. A move lower will be choppy as the bull trend no doubt still has many buyers  with the $GBPJPY still only in a shallow retracement.

GBPJPY WEEKLY CHART

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Sterling Digest – crosses firm up

Yesterday, $GBPUSD fell to new lows just pips ahead of the 50% Fibonacci level at 1.6536. It was the move many of us had been waiting on for weeks. Now that the consolidation in $GBPUSD is finally over, I believe we will see GBP resume its rally in many of the major pairs. The UK fundamentals have been there and the strong recovery is its reality.

GBPUSD vs EURGBP comparison on 4hr chart

However, what is interesting is the reversal that is beginning to confirm itself in the comm doll pairs. I expected these pairs would weaken to key support levels. However, this week, for the 1st time in months, those support levels are being broken. We may be on the cusp of D-Day where swing buyers start to sell and bail out of the market. OR. It could be an incredible buy opportunity because of the BoE minutes and FOMC announcements this week.

  • The BoE minutes are out and they are hawkish. (eFXnews)
  • I saw it too but it never counts unless you publish. These guys were 1st to show this incredible H&S in $GBPAUD. HUGE level. (Twitter, Factor)
  • The $GBPNZD put in a huge level too. While I thought 1.95 was key, 1.9150 proved to more significant. (Twitter, FMFX)
  • Raising interest rates vs. tapering QE — interesting take (Telegraph)
  • The huge bounce off support in the $GBPCAD this week very nicely reflects a dovish Bank of Canada and overall weakness in Canada versus a hawkish Bank of England and robust UK. (Ashraf Laidi)
  • A review of the $GBPUSD move we have been waiting on all month (FMFX)

 

 

 

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Sterling Digest – bulls underneath it all

Low inflation has given the BoE the space to keep monetary policy easy as is. That, in turn, supports the economy which is running very robustly. The market has had every reason to be bullish pounds as the UK recovery has proven to take root. $GBPUSD has come off its new highs but still only in a shallow retracement. It’s been a chop fest as cable slides but trades in a range between 1.6750 – 1.6580. This choppy correction is only indicative of the strong bull trend that is in place. I suspect that cable continues lower to find support around 1.65. But I’ve been piping on this for weeks. I guess that means by now all the algos know too.

GBPUSD DAILY CHART

  • Yes. I have been a broken record about this consolidation pattern in $GBPUSD. (FMFX, FMFX, FMFX)
  • I couldn’t disagree more with UBS. But retail vs. institutional is nothing new. (eFXnews)
  • While I agree with JPM, I’m more bullish than they. (eFXnews)
  • Nouriel Roubini is hawkish on the BoE. Is this a contrarian signal to the upside? (Forex Live)
  • The fundamentals in the UK are phenomenal.  Bad weather be damned. (CNBC)
  • I like this long term look at cable. Good stuff. (BruniCharting)

 

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When It’s Over in Cable

When the consolidation in $GBPUSD is over, the GBP will rip across the board. Cable leads the way during times of consolidation. Even with today’s new lows, I don’t think it’s over. If we look back to our last Fibonacci consolidation range, we got a new low only resulted in a return to the top of the range. Not the expected breakout. That breakout didn’t happen until the 50% Fibonacci level at 1.5850 was reached.

GBPUSD DAILY CHART

But if the consolidation in $GBPUSD is truly over,  I think we see the $GBPCAD, $GBPAUD, $GBPNZD, and $GBPJPY all resume their bullish trends too. Price this week sets up at key support levels in these pairs: $GBPCAD (1.85), $GBPJPY (170), $GBPNZD (1.9550), $GBPAUD (1.85). The $EURGBP is also at the key 0.8350 level but euro seems to be on a tear all its own right now. However, for me, same theory applies for $EURGBP to push price lower on a rally in GBP.

Trade what you see. There are many geopolitical situations at play now than when sterling made its run last year. But cable reigns supreme. Watch its price action.

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The Week Ahead In Charts

GBP/USD

No real change in the last 2 weeks as cable remains rangebound during its consolidation. Price action reminds me of the price action back in October when price finally broke above 1.60. Cable consolidated in a range between 1.61 and 1.59 for that entire month. It wasn’t until price broke down to the then 50% Fibonacci retracement level at 1.5850 that price resumed its monster breakout to new highs above 1.63. I believe that is same price action we have now and price will not resume higher above 1.6820 until we see price fall to 1.6550/00.

GBPUSD DAILY CHART

EUR/GBP

The $EURGBP has finally broken higher above 0.8300 and has moved right into the resistance level at 0.8330. Between here and 0.8350 is a potential sell zone for a move back to the lows at 0.8160. If $EURGBP buyers are to gain anymore traction, there must be a daily close above 0.8350 to signal a sustained move higher to 0.8400.

EURGBP DAILY CHART

GBP/CAD

As Canadian fundamentals continue to deteriorate (Friday’s jobs report showed Canada lost jobs last month), the $GBPCAD will remain bid even as sterling continues to consolidate. The major psychological level at 1.85 remains a level where traders see major positioning for when GBP strength returns. The $GBPCAD has found staunch resistance at 1.86 but still targets 1.90 midterm.

GBPCAD 4-HOUR CHART

GBP/NZD

I’d imagine there is some serious positioning going on in the $GBPNZD right now too. This pair actually had some real movement falling over 350 pips in the past 2 weeks. Price sits at the bottom of this consolidation range as the week opens. It’s a light week out of the UK but the Reserve Bank of New Zealand could surprise markets. Likely more jawboning but geopolitics have changed quite a bit with this Ukraine-Russia situation and commodity prices have firmed. 1.95 is key support into the rate decision.

GBPNZD DAILY CHART

GBP/JPY

The Bank of Japan is set to deliver a monetary policy announcement this week too. The $GBPJPY opens the week at the 172.00 former highs after moving off the new highs at 173.55. A correction lower sees support at 171.50. However, $GBPJPY remains bullish above 170.00.

GBPJPY DAILY CHART

 Compare:

The Week Ahead In Charts (FMFX)

 

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21st Century MegaTrends

I’ve often thought that the method by which we defined employment was no longer adequate. How do you explain slightly increasing consumer spending with the labor participation rate falling here in the US? Many of us are creating are our own opportunities and, thus, creating smaller enterprises to do so. I believe the many people leaving the traditional labor market (measured by our unemployment rate) are becoming entrepreneurs. Whether the title is self-employed, freelancer, or sole proprietor, many people are making money working with other companies rather than for those companies. Clem Sunter explains it so well in this interview last week at the Private Equity in Southern Africa Conference in Spier, Stellenbosch, South Africa. Worth a listen on 3 megatrends playing out right now: the aging of the world, increased natural disasters, and the rise of entrepreneurs. I’ll have to pick up the book.

Watch VIDEO: Clem Sunter on the Pursuit of Entrepreneurship; February 2014 (SAVCA)

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The Week Ahead In Charts

After a week of consolidation in sterling, GBP pairs are a mixed bag as this new trading week gets underway.

GBP/USD

Though $GBPUSD has moved off its recent multi-year highs, it has been a volatile and choppy ride lower. Expect more of the same again this week, as this pair continues to correct lower towards 1.6500. I believe big time buyers are set up all around 1.65 between the 50% and 61.8% Fibonacci retracement levels. A move from these levels supports a rally to 1.7000 mid term.

GBPUSD DAILY CHART

EUR/GBP

The $EURGBP spent all last week struggling at the 0.8250 level. On Friday, however, price broke above 0.8250 and held the level to close the week. While the daily chart is in a clear downtrend, price is holding support at the weekly chart’s 61.8% Fibonacci retracement level. This correction has the potential this week to continue higher to the zone between 0.8330 and 0.8350. From here, it will be decision time. But the odds are with the bears as GBP could catch another bid and push price back to lows.

EURGBP DAILY CHART

 

GBP/CAD

While $GBPUSD and $EURGBP consolidate, the $GBPCAD price action has remained bullish . Candaian fundamentals keep the $GBPCAD well supported on dips. Dips due to GBP weakness have been bought below 1.8500 as CAD fundamentals continued to deteriorate. For some reason the Canadian economy is falling into recession even as the US, its largest trading partner, has remained robust. This pair will continue to have issues getting higher as long as cable is weak. Once $GBPUSD starts to show strength again, the $GBPCAD should find conviction higher again.

GBPCAD DAILY CHART

GBP/NZD

The $GBPNZD has remained very bullish closing the week above the almighty 2.00 level. As the $GBPUSD continues its consolidation lower, there is major positioning occurring at this major psychological level in $GBPNZD. It has been a whipsaw at the highs but as long as the overall GBP bull trend remains in place, this pair is poised for 2.05 mid term.

GBPNZD DAILY CHART

 

GBP/JPY

The $GBPJPY has remain elevated as equity markets bounced higher to the 2014 resistance levels. This week, all eyes on US stocks and emerging markets as 2 wars ended this weekend. The stage is set for risk to rally higher as geopolitical events turn towards peaceful resolution. As $GBPJPY opens this week above 170.00, the bullish sentiment favors buyers even as the trend still remains corrective below 175.00.

GBPJPY DAILY CHART

All these charts suffice it to say that sterling is smoking hot. A trend that can correct is only headed higher. And a trend that holds up during consolidation has the makings for a major breakout. $GBPUSD is the pair to guague timing in the GBP crosses during this time of consolidation. Once major levels are reached in cable, sterling may rock out across the board once again. Or not. Price will ultimately tell.

Disclosure: I am long $EURGBP as of this writing since last week.

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Sterling Digest, 13 February 2014: phase two

Mark Carney, Governor of Bank of England
The honeymoon is over

Bank of England Governor Mark Carney delivered the long awaited Inflation Report after “scrapping” forward guidance just a month ago. What Carney gave is what some are dubbing stronger guidance. He recognized and upgraded the UK economic recover and then added more indicators to produce “Forward Guidance – Phase 2”. Whatever you want to call it, the markets liked it and sterling rallied hard across the board. The rally continued even during the Asian session as those traders got the opportunity to digest the Inflation Report and Carney’s remarks. Now with sterling at key resistance levels, does it have the strength to go higher? What’s even more interesting to watch is if sterling can continue to rally in the face of a dovish BoE.

Image credit

 

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