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Tag: GBPAUD

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Aussie and Kiwi Diverge

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.

GBPNZD daily chart

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.

GBPAUD DAILY

 

Disclosure: Short $GBPNZD

 

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Aussie Bears

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…

GBPAUD DAILY September 2 2012

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

 

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The Temperamental USD

The USD has threatened to rally for months now. But the $GBPUSD remains in its 300-pip range between 1.5500 and 1.5800. Every time traders, and I do mean ME, gets bullish or bearish due to price action, the USD finds a way to do just the opposite.

For example, despite completing the quarter to 1.5750 on USD ($DX_F) weakness this week, cable never broke above the level to challenge the highs at 1.5800 midterm support and resistance. I was bullish cable going into this trading session. I thought price would continue to rally into 1.5750 – 1.5800 zone and then experience a sharp selloff. The selloff came sooner than expected when risk aversion kicked in as Spanish bond yields and equities spooked the market

So what happens next week? With Spanish (and Italian) yields hitting these high rates at the end of the European session, we can expect the USD to continue to rally when the market opens in Monday trading causing this “Strong USD, Strong GBP” theme to play out once again. As such, this week’s GBP bears should enjoy some profits heading into the weekend. $GBPNZD and $GBPAUD short positions, in particular, paid out nicely this week with continuations in the weak sterling vs. commodities trend. However, do not underestimate this USD. It still rules capital flows and when it is strong on risk aversion fever, GBP will also benefit in the crosses. Most notably, the $EURGBP, $GBPNZD, and $GBPCAD are strong candidates into next week. Trade what YOU see!

EURGBP DAILY
Looking for 0.7800 to hold on a bounce
GBPNZD DAILY
This week’s hold above 1.95 despite kiwi rally looks very good for bulls
GBPCAD DAILY
A close above 1.58 supported by the 61.8 Fib gives some life to bulls

 

 

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Strong USD, Strong GBP

There is a new theme emerging with the USD BREAKOUT this week. Everything is weak against USD. $GBPUSD has fallen over 650 pips in 4 weeks. It ended last week on a technical break of the 61.8% Fibonacci retracement level of its entire rally off the January 2012 lows. That was the last defense for bulls though their case was lost with price action below 1.60 for 2 weeks now. However bearish cable may be this does not at all roll neatly into a weak sterling story.

On the contrary, sterling is killing almost everything else. GBP is at multi-year highs against the euro. No secret there as to why. But the commodity dollars are also weakening tremendously against sterling on broad-based weakness in commodities. The strong USD combined with slowing Chinese growth is looking to make commodity weakness a new trend in the short-term.

When trading these markets, timing is crucial. The reason for the choppy consolidation around 1.60 in $GBPAUD and $GBPCAD is due to the sterling weakness in $GBPUSD and general GBP strength in $EURGBP and $GBPNZD. The EURGBP close below 0.80 signals more GBP strength; even as the $GBPUSD close below 1.5750 signals more GBP weakness there. The correlation is ironic. But price action is truth. The strong USD — strong GBP theme bears paying attention to as we head into summer trading.

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Sterling Digest, May 23, 2012: flip-flop

Bank-of-England-Logo
Bank of England logo

Adam Posen’s flip-flop on QE makes the Bank of England more dovish especially as economic data continues to deteriorate at an alarmingly fast rate. While the $GBPUSD and $GBPJPY have been sterling weak, these pairs’ move lower is also tied to increased risk aversion. Conversely, sterling has remained very robust against the commodity dollars. Both the $GBPAUD and $GBPNZD have already made new highs on the week. Will tomorrow’s UK GDP release be the final nail in the GBP coffin?

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1.60 The Big Figure

60 Yonge Street
The Bigga Figure

The market loves magic numbers. And the one on radar is 1.60. GBP is dealing with 1.60 on 3 currency pairs that I follow. This is quite uncanny and ironic but maybe not so much coincidence. $GBPUSD, $GBPAUD, $GBPCAD is a strong dollar bloc. Their breakouts above 1.60 marked technical reversals across this bloc to new yearly highs. But this week’s breaks below 1.60 looks to undo all of that.

Looking back a year at $GBPUSD reveals that a break below 1.60 after breakout above only points to more weakness. What started as a correction has already turned to a reversal in the $GBPUSD today. @EdMatts did a great video explanation so good it was highlighted twice in the Sterling Digest.

$GBPAUD hasn’t held up in the past when it broke below 1.60 after new highs. Where it has held, price rallied for hundreds of pips before topping out.

GBPAUD daily chart

So now look at the $GPBCAD. It is still holding up as today’s low at 1.6003 is ahead of the big figure even if only by pips. It then bounced over 120 pips to settle at 1.6100 (as of this writing). A close above 1.60 keeps the pair bolstered for a rally higher. But with lower highs on the daily chart, a rally to met by sellers until buyers can prove themselves with new highs.

GBPCAD daily

Nonetheless suffice it to say that 1.60 is a serious psychological level for sterling at the moment. Trade what you see!

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Sterling Digest, May 15 2012: safety status rules

50 British Pounds Sterling
Safety trumps economics

The safe haven sterling rallies on. After a dip in GBP on weak UK trade balance numbers, the $GBPAUD, $GBPCAD, $GBPNZD, and $EURGBP continued on in their strong sterling bull trend. The only currencies that gained on the safe sterling today are the almighty rulers of risk aversion: the greenback and yen.

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Sterling Digest, May 14 2012: safety trumps economics

Money makes the world go round
Investors want pounds

It appears that Friday’s theme was mere profit-taking as good news out of Canada and US was excuse enough to move some money off the table. Sterling is back on trend today with comm dolls leading the way. $GBPAUD, $GBPNZD and $GBPCAD have all broken out above their Friday highs in opening market action. While fundamentals point toward a deteriorating UK economic picture, risk flows dominate with GBP enjoys European safe haven status.

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Sterling Digest, May 1 2012: the doves rally sterling

The rather dangerous, The Economist cover
The political reason the ECB turns dovish

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?

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Sterling Digest, April 29 2012: bears want in

One pound coin
One pound coin

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.

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