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Sterling Digest, 26 September 2013: grumpy bulls

 

split screen of GBPUSD weekly and 4hr charts
No wonder bulls are grumpy

We left off the Digest musing over the strength in sterling due to robust UK economic data as GBP hit long-term resistance levels against all major currencies. Since August, GBP has experienced tremendous breakouts in some pairs and significant price corrections in others. Now that $GBPUSD is above 1.60, $GBPCAD above 1.65, $GBPAUD above 1.71 and $EURGBP at 0.84, it seems as though GBP bulls are having their way. However, these moves have not been without resistance. The moves higher in sterling have been a grind with slow, choppy moves that have been difficult to trade on anything but a short term basis. With a light calendar this week, the market has allowed GBP to correct but robust economic data gave life to sterling as $GBPUSD, in paritcular, managed not to loose its important 1.60 level. With 3Q at its end, October brings the market its first glimpse of fall season data. If the UK economy continues to put in robust results, expect GBP to continue its summer rally back to long-term resistance levels.

 

Read the last issue: Sterling Digest, 23 August 2013: reality bites

 

 

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GBP/USD Maintains Bullish Bias

Since coming off the 1.6160 highs, I have believed that a deeper correction was underway. It wouldn’t come fast but it seemed to me that $GBPUSD could correct much of the breakout rally back to the 50% Fib level at 1.58.

However, what has developed this week is a very different story. $GBPUSD has been very reluctant to move too far from the big psychological level at 1.60. Rallies this week met resistance at the Fib levels and dropped to new lows. A correction lower was in progress albeit on a very slow grind. However, today’s UK CBI retail sales release came in much strong than expected causing price to fail with a higher low after the corrective bounce.

GBPUSD hrly chart

The UK recovery story continues to have legs. And as long as that is the case, $GBPUSD remains on course to revisit the highs at 1.63.

GBPUSD WEEKLY CHART

Mentioned above:

Nothing Moves In A Straight Line (FMFX)

Today’s Appearance on FXStreet’s Live Analysis Room (FMFX)

UK CBI distributive trades survey september: 34 vs +24 exp (Forex Live)

 

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Today’s Appearance in FXStreet’s Live Analysis Room

The FXStreet’s Live Analysis Room has become a fun place to stop by and chat markets with veteran trader Dale Pinkert. He has a brought on a wide-array of traders and market participants from all sides, aspects and backgrounds. It’s always an honor to be asked back. (Click the image to listen)

onairnow_fxroom
Listen to Tuesday’s interview ($GBPUSD AT 1.60)

Mentioned during appearance:

 

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Nothing Moves In A Straight Line

This breakout rally from 1.55 has seemingly moved in a straight line up. There were very little corrections during this breakout. However, the correction that has started in the $GBPUSD last week has gathered steam today as cable falls below the major psychological level at 1.60.

GBPUSD DAILY CHART

The USD is gathering strength as US interest rates rise (most likely in anticipation of an eventual taper). However, the bullish bias in $GBPUSD doesn’t completely unravel until 1.57, the 61.8% Fibonacci level of this entire breakout rally. Before that level is the major 1.5750 level that capped rallies all year long before this recent breakout. With a light calendar week, it is very likely that $GBPUSD corrects back to the next major level at 1.5750. From there, it is decision time for bulls and bears.

Mentioned above:

Reversal in the Making (FMFX)

GBPUSD Update (50’s Blog)

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Reversal In The Making

I have been saying all summer that if the $GBPUSD holds above 1.55, then we’d have the beginnings of a reversal in cable. Here we are now with $GBPUSD above 1.60 and a full-blown reversal before us.

 GBPUSD daily chart

After 3 bullish waves (4 on this daily chart), $GBPUSD should be technically exhausted. So this correction back towards 1.60 is healthy and even expected.

GBPUSD 4hr chart

A hold above 1.60 has always been traditionally bullish for cable. Why should 2013 be any different? Despite the pullback off Wednesday’s highs, cable is poised quitely nicely  to make a run for the highs.

GBPUSD weekly chart

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Australian Dollar Puts In A Bottom

The AUD was the darling currency of the last several years benefiting most from China’s rapid growth rates. The tables turned in 2013, however, as the darling of the forex market became a dog. The $GBPAUD rallied over 3,100 pips on AUD weakness just shy of 1.75 with a high of 1.7482. It had not traded at those levels since 2010.

GBPAUD WEEKLY CHART

The weekly RSI is very interesting here. There is a divergence here that has been developing for several months now making it a powerful indicator that, now after some time, $GBPAUD bulls are throwing in the towel.

GBPAUD DAILY CHART

The price movement in the orange channel back in July has been the only “bearish” move in $GBPAUD since April. Since, the pair moved well beyond the 1.6916 July high to make highs last week at 1.7482. The pullback last week turned into a legitimate bearish move with lows breaking the 61.8% Fibonacci level at 1.7061 and moving below the big psychological level at 1.70.

The fundamentals certainly do support a bottom in AUD weakness. Last Tuesday, the RBA signaled an end to outright easing. Much of this breakout rally was due to RBA dovishness and interest rate cuts as other central banks remained unchanged in their monetary policies. Now that the RBA has shifted sentiment, the AUD may be due a significant relief rally.

GBPAUD DAILY CHART

With the break below 1.70, there are 3 support levels to watch in the coming sessions.

  1. 1.6916 is the former July high now turned support. We can see price has found support at this level twice before in August.
  2. The 50% and 61.8% Fibonacci levels at 1.6812 and 1.6653 respectively.
  3. The July low at 1.6141. A break below this level would mean a serious unraveling of this tremendous 2013 rally.

This is the potential of this breakdown:

GBPAUD WEEKLY CHART

Needless to say, we have a long way to go but if the fundamentals continue to improve for the AUD, the 1.5930 level could very well be reached.

Trade what you see.

Mentioned above:

 

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Is GBP/USD Still Bullish?

Getting a lot of questions from traders this morning (PST) asking why the GBP is falling across the board when UK 2Q GDP came out higher-than-expected. There are several reasons.

1. The market can do whatever it wants.

The move could have been caused by profit-taking, swing buyers, or position-sizing. It doesn’t matter. Trade what you see, not what you think. The market doesn’t have to rally on good numbers and doesn’t have to fall on bad. Know your levels and trade what price is actually doing.

Not all dips are acts of weakness.

GBPUSD DAILY CHART

 

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Sterling Digest, 23 August 2013: reality bites

Free stress test. Cool photo on Flickr
Are the markets telling us something?

Carney was supposed to be bearish for sterling. He was supposed to do some monetary magic that would weaken sterling to levels that would jumpstart industry in a stagnate British economy. There is just one problem with that. The story changed. When Carney accepted the position, the British economy was a very sad one. But that is not today’s scenario 6 months later. Numbers have been robust. Optimism is starting to creep in. Headlines are honestly hopeful. But let us not get too ahead of ourselves. The latter part of 2013 is yet to unfold. With sterling moves higher on yields (which are moving higher on growth), the question remains is if this growth is sustainable and repeatable. The uncertainty around this answer plays out as a grinding market for now. The moves are choppy but very well bid into some major resistance levels. ACROSS THE BOARD. $GBPAUD has seen 1.75; $GBPNZD targets 2.00; $GBPUSD has flirted with 1.5750; and $EURGBP remains supported by 0.85. The $GBPCAD weekly chart is unbelievable with price right at long-term resistance at 1.64. Incredible strength in sterling in the middle of August seems a little too good to be true. Wait for September.

Image credit

 

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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.

Mentioned above:

 

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Sterling Digest, 13 August 2013: mixed post guidance

DJ mixing sound board
Carney remixes guidance for UK

Sterling has been mixed since the announcement of forward guidance giving the Bank of England (BoE) a dual mandate to target both inflation and unemployment. It also means that economic data takes on increased importance as markets parse news to determine central bank sentiment and direction in price action. However, sterling has been mixed in the week after forward guidance was unveiled. Last week, GBP rallied across the board post-announcement taking $GBPUSD to 1.5571 and $EURGBP to 0.8578. In this new trading week, however, GBP has weakened considerably off those highs. The spotlight of this week will be the release of the BoE meeting minutes which will give the market a peek into the central bank’s true sentiment on forward guidance. Given the unanimous vote last month not to increase QE, a split vote threatens to weaken the GBP and increase volatility in the near term.

Image credit

 

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