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Tag: EURGBP

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Sterling Digest, 16 July 2013: beware the squeeze

Illustration squeezing housing building
The squeeze always shakes out the weak. Don’t be weak.

Sterling sits on a fence depending on which currency you trade it against. After hitting new 2013 lows last week, the $GBPUSD has since rallied as high as 1.5220. Unable to get back below 1.50, there is a threat that cable rallies even higher. The $GBPAUD, after hitting new 2013 highs, has since retreated back to 1.6350. The $EURGBP is enjoying a nice, albeit slow, breakout to the upside reaching as high as 0.8700. While this week’s data threatens to be GBP-negative, particularly the release of the Bank of England meeting minutes, pay attention to price action. Lower prices may simply translate to better buy opportunities for rallies. With many GBP bears in the market, the squeeze higher could come slowly and painfully. Be aware.

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Sterling Digest, 9 July 2013: the Carney effect

Mark Carney face on 20GBP note
Too soon? Or not soon enough?

Last week, on the 4th of July, Mark Carney made his 1st move as Bank of England governor. While the BoE did not move on monetary policy, it was Carney’s introduction of forward guidance that sent sterling tumbling across the board. Under the Carney effect, GBP has been unable to recover as the fundamentals have completed shifted in a very unexpected manner. Many market participants expected Carney to wait until next month to bring any changes to monetary policy. Carney’s big surprise  should bring sterling to new lows across the board during this 2nd half of the year. The Carney effect will only be exasperated by poor economic data as we saw today and merely slowed, not reversed, by any upside surprises in data.

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The Range Breaks

Last week the $EURGBP finally broke the range. It broke that range to the upside and confirmed with a close above the 0.8600 range top.

EURGBP DAILY CHART

$EURGBP opens the new trading week trading above 0.8600 level for the first time since March. This is a bullish move with a potential move to 0.8750 now in the works. Any dips should be supported by the former 0.86 range top. A daily close below 0.8570 invalidates this bullish setup.

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Carney Makes The 1st Move

fireworks from flickr
Carney set off the fireworks early

New BoE Governor Mark Carney surprised markets today as he made his 1st move on British monetary policy. Instead of the traditional silence on monetary policy hold, Carney not only made comments but gave a full statement to introduce the markets to forward guidance.

At its meeting today, the Committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation contained in the May Report.  The significant upward movement in market interest rates would, however, weigh on that outlook; in the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.

The latest remit letter to the MPC from the Chancellor had requested that the Committee provide an assessment, alongside its August Inflation Report, of the case for adopting some form of forward guidance, including the possible use of intermediate thresholds.  This analysis would have an important bearing on the Committee’s policy discussions in August.

Not only has Carney told the market not to expect interest rate rises, he also telegraphed a possible move in policy as soon as next month. And don’t expect positive economic data to stop them either. This make the August BoE meeting even more important and all eyes have already moved towards expectations for it. We can see that already in today’s price action. Pairs that have enjoyed breakouts like the $GBPAUD, $GBPNZD, and $GBPCAD are seeing long overdue corrections. The $GBPUSD remains entrenched in its bear trend and threatens to break down to new lows. A breakout in the $EURGBP seems imminent.

But US markets are on holiday today so the reaction has actually been muted if you can believe it. Expect the real fireworks when US traders return to all this forward guidance (the ECB is announced forward guidance today as well) and the US NFP release. Happy 4th!

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Sterling Digest, 1 July 2013: dawn of the Carney Era

Mark Carney at the Bank of England
New Bank of England Governor Mark Carney

This is an exciting time for sterling traders as we lay witness to the dawn of a new era. Mark Carney takes the helm today as the new Bank of England Governor. The market, as well as some top officials in the UK government, have been widely anticipating this transition since it was first announced last November. Former Governor Mervyn King has led the BoE my entire forex career. I will miss the always predictable market reaction to King’s speeches (King speaks, sell sterling) but it seems the British are ready for new monetary leadership. Though Carney has set market expectations as a GBP bear, prices will not plunge just because he steps into office. The market will size him up first with plenty of price fluctuations and positioning in anticipation of his 1st interest rate announcement and inflation report. Will the Carney Era bring sterling strength or weakness? British prosperity or recession? In 5 short years, the markets will have their verdict.

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The One That Got Away

The $EURGBP has been rangebound between 0.8600 and 0.8470 for 10 weeks. While impressive, this is not uncharacteristic of this currency pair. When it fell below 0.8500, it lingered at the bottom of the range for 3 days. I expected a continuation to the downside after the 3rd day of still pivoting around, and mostly below, 0.8480. I bailed out of a long position hours before the $EURGBP finally broke to the upside respecting the range.

EURGBP daily chart

Now, the pair is at the top of the range moving as high as 0.8575. As long as price closes daily below 0.8600, the range remains intact and we’ll see a move back to 0.8500. This time, I will be more patient.

 

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Sterling Digest, May 27 2013: the last week of the month

 

Gold Star lapel pin sits to the left, with the Next of Kin lapel pin on the right
Symbols for fallen Servicemen

Memorial Day was started by freed slaves who sought to honor Union soldiers who had died in the Civil War. It is a day we all pause and think about what service in the military means for freedom. It also marks the beginning of summer; and a holiday shortened trading week. There is very little on the economic calendar from the UK again this week. Lots of releases scheduled out of the US however. USD positioning and flows will certainly grip the forex market again this week. That makes the $GBPUSD a prime opportunity. It also makes the $EURGBP a bit of a battleground. Pick your poison.

Read last week’s Sterling Digest.

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Sterling Digest, May 7 2013: April tops, May bottoms

GBPUSD 1 WEEK CHART
May selloffs

Cable ended April hitting the 50% Fibonacci retracement level to the PIP. Pretty impressive for a 30-day rally. As $GBPUSD tops out at 1.5606, it begins the 1st week of May with a lower high (as of this writing). Seasonality trends would have traders note that cable has topped out in April each of the last 3 years. In May 2010, cable was below 1.55 and fell to brand new long-term lows by the end of the month. $GBPUSD finds itself in a similar situation with price action only 40 pips above 1.5500. This week’s BoE rate decision will be closely watched thanks to the RBA’s long-awaited interest rate cut. Most still think the BoE holds policy until Mark Carney takes the helm so Thursday’s event could be a non-event. As such, sterling could be a mixed bag. The ECB, RBA, and BoJ are clearly dovish while the BoC and RBNZ are hawkish. The Fed is on watch but positive data continues to build the case for a strong USD. The BoE’s decision sets the tone for sterling the next 30 days. Which way will the Old Lady lean?

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Sterling Digest, April 30 2013: April rallies bring May selloffs

Slow Trek Into Recession movie poster
Could GBP’s best days be behind it?

Today is the last day of the month and sterling has enjoyed April. $GPBPUSD closed last week at 2-month highs with a rally that finally took it above 1.55 to 1.5546. $GBPAUD rallied to new highs above the 1.50 major psychological level not visited since Feburary. $GBPCAD moved to spike highs at 1.5823. Needless to say, its been a breakout month. Despite the bullish price action, sterling is still very much correcting on long-term timeframes. All the aforementioned pairs are at or around the 50% Fibonacci levels on the weekly charts. And tomorrow is May. For the last 2 years, $GBPUSD has seen a tremendous sell-off in May. Being at new highs and technical levels sets sterling up for a fall more dramatic than its rally.

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Sterling Digest, April 23 2013: bears in bulls’ clothing

Bears sitting for a portrait. Painter paints a bull.
Pound Sterling

It’s the last full week of April. Then the bears come in. “Sell in May”, as they like to say. Sterling has been enjoying a nice corrective rally all month. I championed the new bullish sentiment on the blog here and here. But the bull shine could be starting to fade. $GBPUSD has many traders calling a top. Fitch downgraded the UK economy late Friday and $GBPUSD opened the week to drop to 1.5200 while $EURGBP spiked to 0.8590 highs. However, the weakness has been short-lived. Once the Monday trading session commenced, sterling found its legs rallying across the board. $GBPAUD staged a breakout in Monday trading. There are some reasons. Fitch’s downgrade is old news. Poor economic news news lately is not translating to much lower prices. With the economic calendar very light out of the UK this week, sterling could be a mixed bag to finish the month.

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