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Timing Is Always Important

Sterling has completed some big time levels in the past week. $GBPUSD hit one-month highs at 1.5571. $GBPAUD broke out higher to 1.7340. And $EURGBP mean reverted back to 0.86 after hitting 5-month highs at 0.8750. I say all that so you can understand why I’m very much on the defensive into this new week. It is important to recognize how likely it is that these particular pairs start the week consolidating these major moves.

With the $GBPUSD linked to the almighty USD, cable will certainly lead. Opening below 1.55 signals weakness that could be short-lived as the Monday session gets underway. 1.5430 resistance-turned-support and the 1.5400 50% Fibonacci level of the rally from 1.5102 to 1.5571 are the key levels of support to watch now at the market open. $EURGBP below 0.8600 has 0.8570 as key to direction. The loss of 1.6925 resistance-turned-support signals further losses toward 1.6750 in the $GBPAUD.

If you enjoyed these major moves, take a seat back. If you missed these major moves, take a seat back. Timing is a critical factor in our trading. Be mindful of the timing: big moves, August trading, and new shifts in some of the major central banks. There is no need to rush or force trading, today, in particular. Often times, the best opportunities in the market are those you can wait on.

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Reversal Territory

Last week, I started to have a more bullish stance on $GBPUSD. Price had to get back to 1.5000 or it would start to target 1.5500. Cable gave traders plenty of clues last week, however, the market waited on the BoE . Yesterday, Carney served up his own flavor of forward guidance: hard guidance complete with a dual mandate of inflation and unemployment and complete with 3 exit clauses for wiggle room. Genius. He effectively talked down rates while signaling no more QE and sterling loved it. $GBPUSD finished the business with a new high after holding the Fibonacci levels.

GBPUSD DAILY CHART

The inflation report caused severe volatility in the markets but despite the high volatility, cable managed to hold the 61.% Fibonacci level of the week’s rally off the 1.5100 lows with a slight overshoot and close above even the support zone (yellow). These were very bullish signals that I didn’t even trust at first because Carney was still speaking at the time. That hold though was then followed by a break above the 1.5430 highs. After breaking higher, $GBPUSD remained above 1.5430, finding support at previous resistance on a pullback before breaking to yesterday’s session highs at 1.5530.

CABLE 60 MINUTE CHART

All very technical and bullish action which supports the bulls’ case for new highs above 1.5750. While forward guidance may seem very bullish for sterling at the moment, it is how recent economic data lies on this forward guidance spectrum that is giving sterling strength. With solid numbers from both manufacturing and retail, traders feel now as though QE is no longer on the table. I’d say August is a bullish month for the $GBPUSD. However, if the UK economy fails to build on this tepid recovery, it could be very bearish, very quickly for cable. Remember, expectations for growth have actually been revised higher.

Trade what you see.

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Sterling Digest, 6 August 2013: flavors of guidance

picture of flavored salts
Which flavor of guidance will Carney serve up?

This week, it is all about the Inflation Report released tomorrow. With no statement released after the Bank of England decided not to change monetary policy, the market has been in hot anticipation of this formal forward guidance that Mark Carney will issue for England. The discussion of forward guidance has become fragmented: hard guidance vs. soft guidance; inflation target vs. GDP target. Given the state of the UK economy, it will be interesting to hear what Carney has to say in his 1st inflation report. Even more interesting will the be the market reaction. Yesterday’s strong retail sales caused sterling to rally hard across the board. Today, however, sterling has weakened after strong manufacturing numbers were released. Either the market is running out of steam or it is already looking ahead to tomorrow’s inflation report.

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THE ONLY CABLE CHART THAT MATTERS

GBPUSD 4HR NOW
Posted 24 hours ago so not updated with yesterday’s new lows but price never invalidated the bullish outlook

We are 20 minutes into the release and this is the only chart that matters. 1.5250 confirms to the upside. Need at least 2 15-minute candlesticks close above 1.5250 on this NFP miss. If not, then 1.5050, the 61.8% Fibonacci level, would be the level to watch.

Read also: A GBP/USD Reversal Likely (FMFX)

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Is GBP/USD Reversal Likely?

Last week, the $GBPUSD has signaled a reversal higher on its small breakout above the 61.8% Fibonacci level as it rallied off the 1.4813 lows.

GBPUSD DAILY

While I expected a rally to continue higher from 1.5400, the diverging RSI at those highs played out into weakness that dissolved to new lows yesterday at 1.5120.

GBPUSD 4HR MONDAY

Then bulls stepped in huge yesterday at the 50% Fibonacci level of the corrective rally.

GBPUSD 4HR NOW

Now what? Because of the long term bear trend, sellers got confident and forgot about that breached 61.8% Fibonacci level of last week. The BoE has stayed pat on monetary policy again this month with no statement released hereafter. The market reaction to this BoE monetary policy decision has been positive for GBP. With the hold of this 50% Fibonacci level, the breach of the 61.8% Fibonacci level on the daily chart and today’s diverging RSI at the lows, I see a rally in $GBPUSD back to 1.5500. A daily close above 1.55 gives an early signal of a reversal in the long term bear trend. However, bears prevail on a move below 1.5050.

Trade what you see.

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Sterling Digest, 30 July 2013: forward guidance

Mark Carney as Buzz Lightyear cartoon
FORWARD!

The new fancy buzzword in sterling markets is forward guidance and Carney is supposed to deliver a hardline version of it after the Bank of England (BoE) announces its decision on monetary policy on Thursday. However, there are mixed views on how markets will react. Some expect $GBPUSD to move higher to challenge to the 2013 highs. Many others, on the other hand, believe the $GBPUSD to move back below 1.50 in reaction to forward guidance. Given sterling’s reaction to the soft forward guidance delivered after last month’s BoE meeting and in light of a progressing economic recovery in the UK, it appears that anything is possible. It quite likely sterling satisfies both bears and bulls in the 2nd half of this year.

Image credit (Read the article too)

 

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GBP/USD Ahead Of Key Data

The $GBPUSD has met all expectations here with its move right into the 61.8% Fibonacci retracement level of the latest bearish wave.

GBPUSD 4HR CHART

The market now waits on the UK GDP release. The expectations in the market are high for a positive beat which actually increases the downside risks in cable. If GDP disappoints, I believe the rally will be over. The technicals support a resumption of the bear trend with the 61.8% Fibonacci level capping the rally so far and a diverging RSI at these new highs. However, an upside beat or even an inline print will fuel this rally right back to 1.5500. A daily close above this psychological level will mark the beginnings of a reversal in the $GBPUSD.

Trade what you see.

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UPDATE:

I corrected my thoughts on an upside or inline GDP print in my interview chat with FXStreet (at the 3:00 mark).

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Sterling Digest, 23 July 2013: #royalbaby bump

royal baby announcement
It’s a #royalbabyboy!

The UK monarchy has a new addition and the hype surrounding the birth of the new prince could arguably be called overdone. But sterling opened the week to news that Kate Middleton was in labor and rallied very nicely in the wake of the good news. $GBPUSD made new highs at 1.5384. $EURGBP broke to new lows at 0.8582. The baby has been here less than 24 hours and he has become responsible for lifting the UK into economic recovery. Talk about influence! In all seriousness though, with the economic calendar extremely light this week, sterling traders are looking ahead to Thursday’s UK GDP release. In light of the some robust numbers from retail sales and PMI in the past weeks, GDP is expected to surprise to the upside. Such a surprise will continue to fuel sterling strength and possibly induce a reversal in the $GBPUSD and $EURGBP. However, GDP expectations are so high that a disappointment may just end the rally.

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Decision Time For EUR/GBP

The $EURGBP is at a crossroads at this 0.8600 level.

EURGBP daily chart

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. As the $EURGBP entered the zone last week, it was met with bids as the pair closed the week at 0.8609. Now as trading kicks off in this new week, price has slipped back into this zone. Where will $EURGBP go from here? With a very light economic calendar this week, this pair will be particularly driven by the UK GDP and German IFO releases. Either the bulls return or the bears step in.

Trade what you see.

 

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EUR/GBP Reversal At Hand

I hardly think so. But yesterday I read 2 analyses on $EURGBP that spelled out opposing views on the future direction of the pair. And I think, as traders, it is always important to consider both sides of a trade no matter your own opinion on price action.

The Bear Case

EURGBP monthly chart

Despite the recent new highs (today at 0.8710), price does remain in this downward channel that has been forged over the past 4 years. The fundamentals weakly suggest that the UK economy is doing relatively better than the rest of the EU economy. The bears do have a case especially at these levels.

The Bull Case

After trading in a range for over 10 weeks, the $EURGBP broke that range to the upside. Typically, a breakout ensues in the direction of the break when there has been a well-established range. And the $EURGBP did break out to a high today at 0.8710. However, the Bank of England minutes of Governor Carney’s 1st meeting revealed a much more hawkish central bank. Additionally, UK unemployment data came out much stronger than expected. As such, the $EURGBP has pulled back into the Fibonacci levels of the rally after the range break.

EURGBP DAILY CHART

Even on this pullback, the bullish picture remains intact. The market now awaits the testimony from Fed Chairman Ben Bernanke. Dovish comments from Bernanke could support the EUR and push the pair back above 0.8700. However, if the pullback extends beyond the 61.8% Fibonacci level, only a daily close below 0.8574 would indicate bearish price action in the short term targeting 0.8500.

Trade what you see.

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