Market commentary and analysis insights. Brought to by FM Capital Group.
It has to be a very scary thing when your banks, companies, households and even governments can’t pay down its debt. Can a currency be made worthless based on its debt load in a world where money is electronic and can be minted with a push of a button? We just may soon find out. Exit the euro.
The euro sank this week as the Eurozone became unhinged in political elections that ousted leaders who led the charge for austerity. $GBPUSD followed in sympathy but today’s BoE decision to hold off on another round of quantitative easing (QE4) has lifted sterling across the board. As with any strong trend, the contrarians are circling. Many bears are out looking to short sterling especially in $EURGBP and $GBPUSD. But this bull trend in sterling is not one to step in front of. Don’t fight the flows!
The spotlight event of the month for the forex markets is today’s US NFP release. As USD sentiment seems to have shifted to fundamental flows rather than risk flows, a disappointing number could weaken the USD. $GBPUSD has found support at 1.6160 all week. US NFP should be a catalyst for further correction or a continuation of the bullish trend.
$EURGBP has broken to new yearly lows in today’s trading as sterling continues to gain against the euro. UK economic data continues to come in mixed but, despite the consensus, PMI numbers above 50 suggests the economy has signs of strength.
Everybody knew that the RBA was set out to cut interest rates. But the RBA surprised the market with a much bigger than expected cut of 50 basis points. $GBPAUD rallied hard after the announcements and remains over 100 pips above its pre-RBA levels. The ECB also delivers an announcement on interest rates this week. The ECB is also expected to be dovish as the central bank shifts its focus off the banks and on to their economies. The $EURGBP remains below 0.82. Can sterling continue its rally on dovish sentiment from other central banks?
After such a bullish close to the week, it seems almost natural that sellers and sterling bears start piling into the market looking for their next opportunity at these higher levels.
$GBPUSD slaughtered bears today as it charged to new yearly highs to close the week above 1.6250. That’s a bullish statement. The nice thing about this trend is that there have been corrections along the way so it is hardly overbought. And while this rally started in the midst of UK QE3, now that the central bank has turned hawkish there may be no stopping this sterling rally. Despite what you may think about the UK economy, it is the central bank’s turn in sentiment that strengthens sterling right now. And that makes this rally for real.
There is so much commentary about the British economy following the release of official data that revealed the UK economy is in a double-dip recession. Traders, however, look ahead to the Bank of Japan rate announcement for whether the $GBPJPY remains supported above its major psychological level at 130.00.
It was the hawks versus the doves of the BoE and today the hawks won. Even with the UK falling into a double-dip recession, the BoE has already told the market that the economy is actually stronger than the number would reveal. They are ignoring today’s GDP release. And the market followed suit with new yearly highs. We noted yesterday that any sterling weakness on the back of a disappointing GDP number would be temporary. Coupled with Bernanke keeping the door open for QE, $GBPUSD bulls remain well supported above 1.60.
Especially when it comes from Goldman Sachs:
The mighty Goldman Sachs has apparently recommended selling EUR/GBP at 0.8210/20 with a tight stop of 0.8250 and targeting a move back down to 0.8150/60
Since Goldman Sachs wants to make trade recommendations, why don’t we all make some? Here is mine:
GOLDMAN SACHS IS LONG EUR.
Do what you will.
Source: Trade Recommendation… (Forex Live)