FaithMight

So my 1st full week back in the markets was treated by a long-awaited breakout in the $GBPUSD.

The breakout above 1.58 to 1.5900 still needed confirmation. We have been faked out by cable’s breakouts before. But this week’s breakout actually looks for real.

1. The Fed

The Federal Reserve has been very vocal about adding another round of QE to the markets. The Fed meeting minutes released this week confirmed this. In fact, during Friday’s session, a letter from Bernanke hit the newswires. This letter confirmed and justified more QE from the Fed Chairman himself. QE is always dovish and the USD has taken a hit every time the market anticipates any QE from the Fed. This time is no exception.

2. 1.5800

1.5800 has been a very key level for the past year. Whether price is trading above and finding support or trading below and finding resistance, action around this price level has been historically indicative of further direction. To close the week above 1.5800 is a very bullish technical signal from the $GBPUSD.

Last week, I was very skeptical of cable’s rise. Even as it staged a breakout, sterling’s fundamentals kept me wary. However, now that we have had technical confirmation with this bullish weekly close, I trust the charts to support this breakout back towards 1.6000. The only thing that changes this bullish view this week is a daily (or weekly) close below 1.5750. Trade what you see!

After watching cable remain rangebound all summer, the market used the Federal Reserve as a reason to weaken the USD further. As a result, the $GBPUSD broke its range to the upside. Traders know this to be a bullish signal but I am skeptical of this rally.

1. The Bank of England

The BoE is also very dovish. It, too, has signaled more QE is coming. That’s QE4 folks.

2. UK Economy

The British economy was the first of the G10 to slip back into recession when it did so in the Q1 2012. The Olympics may give the economy a welcomed bump, it will be temporary rather than a kickstart to a recovery.

3. The Eurozone

The UK’s biggest trading partner remains on the brink of financial collapse. To boot, the Eurozone countries are also falling into recession one by one and suffering staggering unemployment.

So the GBP fundamentals are very weak. But the market is all about the USD for the moment. And for that reason, $GBPUSD can go higher. In fact, the bullish close 60+ pips above the key 1.5800 level confirms a technical breakout has occurred. However, follow through could be hampered by the big 61.8% Fibonacci level on the daily chart. Will this breakout turn into a fakeout? It is still a very real possibility. Like I said, I’m skeptical. But trade what you see!

While this move higher into 1.5800 has peaked a lot of interest, $GBPUSD still closes below the key resistance level. Cable remains rangebound. It looks like a big move but she has yet to prove herself. I love how 50 puts it this morning

euro and cable, just a reminder > price tends to not only move in one direction 😉 focus on the levels and bigger picture #forex $$

— 50 Pips (@50Pips) August 22, 2012

 

Trust the chart. And this is why I love StockTwits because that wise nugget comes through to keep things in perspective. Because I actually understand the bulls. It seems the market expects a dovish move from the Fed. I am more skeptical but that doesn’t matter. All that matters today is the market’s reaction to the Fed minutes. If they support the market’s notion for a QE move in September then a breakout could be imminent.

But it is still summer. Trust the chart. The $GBPUSD has yet to become bullish after yesterday’s big move. Not very constructive as the market awaits the release of the Fed minutes. Trade what you see.

 

 

Vacation is over. Kids head back to school this week. It’s back to business. My family is excited for the routine to return. I’m sure traders are too. It’s been a slow-moving, rangebound market.

While vacation may be over, it is still summer. And the $GBPUSD has been rangebound all summer. It’s been a choppy range though. Channel traders who stuck through it profited very nicely.  Showing the kids a good time this summer, I mostly watched from the sideline shaking my head. There were days that the market didn’t even move. There were days it moved 70 pips. $GBPUSD typically has an ATR of 150+ pips. In a trending market, cable can be a thing of beauty. But it is summer. And the long term downtrend has consolidated into a nice-looking channel.

But it takes trust to trade the channel. Given the state of the market right now, it’s hard to trust this market. But with several more weeks left of summer, there is little reason for $GBPUSD to move beyond 1.5800 to the upside and 1.5300 to the downside. As traders play the range, we take care not to get lulled by the lazy days of summer. Rather, sentiment is cautious. Will cable actually follow through on its range break? Because eventually the range will break. Until then, we trade what we see.

Cable is setting up ahead of the Bank of England decision tomorrow and Friday’s US jobs report. Both releases have impact on both sides of this currency pair so I always find it interesting to look at where the pair trades ahead of these back-to-back releases. Despite the overshoot break below 1.5500, the 61.8% Fib held to see cable rally back to 1.5700. With price exhausting at the whole number, a weak sterling has taken $GBPUSD lower into the zone between 1.5575 and 1.5600. This move lower technically gives bulls a nice buying opportunity. However given the event risk over the next 2 days, traders should assess their risk accordingly ahead of the BoE and NFP.

If cable closes the week above 1.5500, the pair remains bullish and favors a move back into the major 1.5800 support-turned-resistance level. A move into 1.5500 still remains a buying opportunity unless $GBPUSD closes out the week below the major psychological level. At current levels, it is still all about 1.5500.