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Tag: EURGBP

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Majors Meltdown

Ivaylo Ivanov of SocialLeverage50 tweeted this sweet currency chart this morning before the US open. With 1 more day until it ends, it pretty much sums up the entire 3rd quarter of 2014.

stocktwits chart posted by ivanhoff
Everything at their chart extreme except for pound

Which surprised you the most? Sterling has been pretty resilient to the USD strength as it found favor in the face of a majors meltdown. The currencies of the G10 all melted this quarter and all to pretty significant support levels. Except for the pound sterling. Even the mega rally in the USD is at a significant resistance level. Is GBP a laggard? Or the exception? A signal of future strength in the currency? Or future weakness?

Source: Image credit

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The Aftermath of NO Vote

So the United Kingdom has avoided divorce and remains united after all as the Scots voted against independence last Thursday. The market has responded with massive sterling strength across the board. In fact, we have breakouts in the $GBPJPY, the $EURGBP, and the $GBPNZD as the weakness in the cross currency serves to exacerbate these rallies.

The $GBPUSD, however, may not rally like its cross pairs. This relief rally in cable is still a corrective rally and will likely meet resistance at the 1.6750 resistance level. Furthermore, there is confluence at this major level as the 61.8% Fibonacci level of the entire decline also falls at this level.

GBPUSD DAILY CHART

Before the 1.6750, I’d expect offers to come in at 1.6500 and 1.6620, the 50% Fibonacci level. But it is the 1.6750 level where bulls will ultimately have to prove themselves.

Trade what you see.

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The Scottish #IndyRef

IMG_4150.JPG

My first reaction was that market doesn’t care about my take so why would I have one. Each day, I attempt to approach the markets with humility because I don’t want to fall in love with a bias that will beholden me to a position. But if I’m really honest with myself, of course I have a take on the referendum!

I don’t think the Scots will go through with it. And if I’m right the market will flail about for a few hours, or days, and go back to trading the status quo. And the stays quo is that the economy is not as strong as it was a year ago. Wage growth, the new forward guidance, is tepid at best. No matter what Carney says, I don’t think he can convince a majority of the MPC to raise internet rates until there is more proof of inflation beyond house prices. In fact, the weakness in commodities actually buys the BoE some time as energy prices are even less of a drag on inflation than they’ve ever been before.

If the Scots prove me wrong and vote in independence, then the pound sterling will weaken fast and sharp across the board. A currency crisis will literally materialize in a matter of hours as markets deal with a sudden GBP currency union or a new Scottish currency.

So, in conclusion, my take is bearish GBP. But I know the markets can do whatever they want to do. So whatever you do with this “insight”, please do mange your risks appropriately and trade what you see.

Read also:

Image credit

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The Sterling Digest, 15 September 2014: ref talk

aye or die!
Manifest destiny?

Of course, the only thing still on the wire is the Scottish referendum. But the Scots stand to rock the world as secessionists everywhere get emboldened by the possibility of independence. Naturally, the referendum polls are just as emotional as the voters they reflect. Sterling spiked to new weekly lows across the board as the Yes vote took lead last weekend. Then the No vote moved ahead as the trading week unfolded and sterling surged big time right back to familiar highs in all the GBP pair majors. Headed into the actual election this week, expect price to actually weaken as buyers take profit and sellers take advantage of the recent highs. Even with the Bank of England set to make a monetary policy announcement, all eyes this week are on the referendum vote. Friday, the day after the vote, will be the most interesting trading day of the week and may set the tone for the rest of the year.

Image credit

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When Uncertainty Trumps Doves

Remember this? The inverted head and shoulders pattern is messy but it is underway. As recent as last week, and certainly for the past 5, euros were sold hard to new lows. The ECB nor economic data out of the periphery EZ countries gave investors much reason to hold the currency versus the pound sterling. However, now that QE has started in the Eurozone, the certainty of that dovish cycle is everything right now to the uncertainty wreaking sterling right now.

EURGBP WEEKLY CHART

When we first looked at the reversal potential in $EURGBP, price targeted the 38.2% Fibonacci retracement level near 0.8100. However, now that the referendum polls have begun to spook markets and economic data is deteriorating, price has the potential to challenge the former weekly lows at 0.8160.

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Massive Reversal Potential in EUR/GBP

Do you see what I see? Despite Draghi’s best efforts, the $EURGBP continues to hold support. Remember the importance of 0.7920. This week, buyers have supported euro at this level. The first resistance is the neckline at 0.7982 but 0.8000 is decision-making time.

Now my question to my chartist friends, what is the target on a daily chart inverse head and shoulders?

EURGBP DAILY CHART

 

Trade what you see.

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The Sterling Digest, 8 September 2014: divorce jitters

WSJ chart - closing in on the vote
When traders are buying insurance on currency, you know things just got real

The markets have known about the upcoming Scotland referendum for months now. And it was largely ignored because it didn’t seem like anything could break up this unhappy union. Now GBP sterling is looking like a currency union all out of nowhere. No one calculated that kind of government risk from the Old Lady. The market has been taken for a loop. This extreme market reaction may only the beginning because it is yet another changed expectation in sterling’s long-term sentiment. Traders are starting to believe that the market could get more volatile still. What I had thought was a non-event just months ago has thrown another interesting fundamental twist to the landscape. A currency crisis could give this reversal some real legs to undo last year’s sterling rally.

  • The options market saw this drop coming last week. (WSJ)
  • Scotland has to make a clean break. (The New York Times)
  • Super Mario is fearless leading the ECB down the yellow brick road of bond purchases. (Bloomberg)
  • Speaking of fearless, have you met Wonder Woman Yellen? (The Washington Post)
  • This is not a new issue. Did markets miss it or is it actually adjusting to a new reality? (Credit Suisse)
  • Scotland may not be Quebec or Texas. (BK Asset Management)
  • A good look at cable just before today’s gap and drop lower. (Forex Live)

Image credit

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NFP Quick Look

Headed into the non-farm payrolls, $GBPUSD has put in a significant correction back to 1.6822. Huge level. Not only is the 50% Fibonacci retracement level, it is also a former resistance level now serving as support. GBPUSD DAILY CHART

While the $EURGBP is staging a corrective bounce, it is still contained by its former zone of support now acting as resistance. EURGBP DAILY CHART

The market’s reaction to the NFP may determine a new direction in sterling. Keep an eye on both pairs into this morning’s news release. Trade what you see.

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The Sterling Digest, 25 July 2014: define safe

It seems to me that the bulls are still safe. Despite the stalling at highs 2 weeks ago and the inevitable selloff this week, sterling looks well-poised to begin its move higher from current levels. The charts look great with the selloff in $GBPUSD right into 1.6950; and the rally in $EURGBP capped by 0.7950. If these areas of support for sterling hold, it could be off to the races as sterling pushes higher again. But has there been a fundamental change that would support further GBP weakness? This rally has been fueled, first, by economic growth and, now, by interest rate hike expectations. The market will, however, pay attention if the data misses reported throughout this month become a trend. And such a trend will temper the market’s expectations for interest rate hikes. What happens when the BoE decides instead to taper its QE program? Or if the $FED does raise interest rates? How safe really is this GBP rally? Consider it is safe for now.

 

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