Market commentary and analysis insights. Brought to by FM Capital Group.
As the market closed Friday trading, $EURGBP encouraged bulls with a close above the 0.80 major psychological level. The close above 0.8030, however, should give bulls even more confidence into this week’s open. As a major support/resistance level, we see the influence a candle close above 0.8030 can have, even more so than the whole number.
I’m still not a fan of a long euro position. But the recent high at 0.8160 is a new high. We have higher lows on the daily chart here. And my friend JC has been bullish the euro ($EURUSD) for some time now. It now looks to me that euro long is the path of least resistance.
Disclosure: Closed shorts at 0.8032 for +56.8 pips.
Now with FOMC behind it, this week’s market open in $GBPUSD was deja vu. Remember when cable closed above 1.60 for the first time in 5 months? The new market opened chopping around 1.60 before breaking higher to 1.6250. We have the same price action as price now chops around 1.6250.
But not everyone believes in this trend. There are a lot of bears out there.
Retail traders have remained net short on $GBPUSD for nearly six weeks.
— John Kicklighter (@JohnKicklighter) September 18, 2012
That’s an incredible statistic in the face of a 500-plus-pip rally. It makes me shake my head to the fact that this pair could run higher just on sheer unwinding of losing positions. Many of these bears point to the sterling’s own weak fundamentals. But the fact is the BoE’s on-hold (for now) monetary stance is much more hawkish than unlimited QE. The very notion of unlimited money printing is ridiculous. QE-infinity is rightfully killing the USD. Even QE3-backed pounds are more attractive at this point. As such, I think that the $GBPUSD can still run higher. Technically, it has given nothing but bullish signals since breaking and holding above 1.58.
Commented on StockTwits: $GBPUSD Only one lower low in past 13 trading days. stks.co/mAeH
— Peter Brandt (@PeterLBrandt) September 17, 2012
As cable opens the week chopping around 1.6250, it works off its overbought nature without retracement. While I do agree that $GBPUSD is overdue for a pullback, we cannot overlook the power a trend. Don’t mistake this chop as a bearish signal. Trends are powerful. I believe this one has just gotten started.
With 1.63 resistance looming not too far ahead (price at 1.6240 as of this writing), time your entries well. Even a pullback to 1.60 doesn’t change the bullish outlook short term. Trade what you see.
The New Zealand dollar weakened for a month and rallied the $GBPNZD to the big time 2.00 psychological level. Despite the breakout higher to 2.0050, price formed a double top at this level. Earlier this week, I stated my wariness with this sterling rally versus NZD. Kiwi fundamentals looked good on this rally. In fact, this impressive looking $GBPNZD rally was only a correction. With the 50% Fibonacci level at 2.00 holding, this pullback could make its way to new lows. Today’s break below 1.9750 signals a move lower still to 1.9500.
In contract, the Australian dollar is still fundamentally weak. Iron ore and copper prices are still at low levels. The global economy is still slowing. This sudden wave of bullishness didn’t change those things. The recent $GBPAUD rally was a breakout not a correction like the $GBPNZD. To me, this wk’s rally in AUD is just a correction. Now we are starting to see this divergence in fundamentals play out versus the GBP. This may only be the beginning. Trade what you see.
Disclosure: Short $GBPNZD
The NZD trades in the shadow of the almighty AUD and the more familiar CAD thanks to its proximity to the US. While the NZD is a commodity play, it is not a play on energy like the AUD and CAD, but on foods like dairy and cattle. Even as inflation has edged lower in many countries, food prices remain stubbornly high. The high prices in these and other agricultural commodities have gripped the NZD in a bull rally for much of 2012.
The $GBPNZD enjoyed an incredible rally in the 1st half of the year. So it seemed natural that a pullback occurred off the key resistance level of 2.10. But when the $GBPNZD broke below the major psychological level at 2.00, price broke down to new lows at 1.47. Since that low, price has marched higher. Last week, price staged a breakout above the previous high at 1.9825.
The new week open has seen price gap higher to a high of 1.9880. The pair is firmly bullish to open the new week. The key level this week is 1.9750. If $GBPNZD remains supported above 1.9750, price targets a move above 2.00. A close below 1.9750 sees price move lower below 1.95. Because the fundamentals still look strong, it will be interesting how price behaves at the 2.00 level which is also the 50% Fibonacci level of the entire breakdown. Trade what you see.
Disclosure: No position
AUD bulls have enjoyed quite a rally since May 2012. However surprising to me, the market has determined that the AUD will no longer benefit from high-priced commodities due to a slowdown in demand. This sagging demand has begun to weaken prices. We find this evidence as over the past several months we have seen inflation tick down in many countries. David Bassanese writes that,
the mining boom is not over, to be sure, but its contribution to growth is waning and should go into reverse in around a year’s time…I am also warming to the view that the transition back to the non-mining sectors will need to be aided by much lower official interest rates – potentially another one percentage point cut in the coming year…
In anticipation of a slowing economy and rate cuts from the RBA, the market has turned decidedly bearish on the Australian dollar. And this is just the beginning of the new trend. Since the bottom at 1.4700 in July, the AUD has weakened tremendously against the GBP as it heads lower across the board. The $AUDUSD and $EURAUD have also breached key levels at 1.05 and 1.20 respectively. Both pairs closed the week well beyond those levels. The $GBPAUD was no different. After serving as key resistance, this week’s break above 1.5250 led to a breakout of over 150 pips. $GBPAUD ended the week well above 1.5250 and remains bullish to open the week. However, price could chop around 1.55. A daily close above 1.5750 targets 1.60. A close below 1.55 targets 1.5250. Trade what you see.
Disclosure: Long $GBPAUD
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.
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.
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.
The BoE is also very dovish. It, too, has signaled more QE is coming. That’s QE4 folks.
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.
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.