Market commentary and analysis insights. Brought to by FM Capital Group.
For our first sterling chat of the year, Dale and I got right into my thoughts on Brexit given the upcoming vote in Parliament next week. Other highlights include:
Enjoy!
Mentioned: My 2019 Outlook (FaithMightFX)
It’s always a treat joining Dale Pinkert live in the Forex Analytix Community Experience. This is the premier trading room on the internets right now. So it is honor to speak to this audience. To hear, today, how much value I bring to them is humbling. It makes my day to help people in their journey to successfully navigating these markets:
great show today. Glad to listen in.
— Jamerson (@JamersonHayes) August 16, 2018
Great Analysis and I agree the #GBP is overdue for a correction. But due to the geopolitical tension and the #USD trading at yearly highs/ #Gold at yearly lows, we could see more depreciation. We could be trading below 1.2700 by tomorrow as 1.2765 has key resistance. pic.twitter.com/u3dpQHq8qL
— Xanadu Flow (@XanaduFlow) August 16, 2018
@faithmight great presentation this morning on @forexanalytix , thank you for sharing your insights on the British Pound.
— Me (@kbunky1) August 16, 2018
Great webinar.. pic.twitter.com/sWHDecsCBr
— Xanadu Flow (@XanaduFlow) August 16, 2018
Take a listen below to our masterclass lesson in the GBP in real time after 4 straight months of decline against the USD and new lows versus the JPY. What’s in store for the rest of 2018?
This week, Wednesday, I had the pleasure to be back on the air with Dale Pinkert of Forex Analytix Community Experience. If you didn’t catch it live, you missed the opportunities I pointed out in the $GBPAUD and $GBPJPY.
Weakness has seized the GBP this morning after the recent UK GDP miss on top of the weakness in retail sales and inflation. There is no way the Bank of England raises rates in May or June. And that shift in sentiment now threatens to completely undo the recent GBP rally. See my thoughts ahead of this selloff.
There are ebbs and flows to every market. Trade what you see. Learn how. Invest with a pro. [sponsored]
Happy new year to the Forex Analytix team! This team of traders are experts and veterans in forex trading. Many of them I have been following for many years on Twitter (@nictrades, @spz_trader, @forexstophunter) and even before there was a Twitter (@pipczar). But the F.A.C.E. community is also full of many expert traders as well as new traders. So when I am asked to come on the show and discuss my views of the market, I consider it quite an honor. The respect, questions and great feedback I get from this team and audience makes it such pleasure to return.
Dale has such great timing as I made my first 2018 appearance on F.A.C.E. right before the Great British pound went on this monster breakout today. I revealed a few secrets that even Dale admitted he hadn’t heard from me before on his shows. The specific levels have been left far behind after Wednesday’s price action but the trading principles I discuss can be applied even now. Enjoy the show!
The market seems to be turning higher for the commodity dollars (comm dolls), which is inline with the recent price action in commodities. Commodities, like copper, oil, and gold, have been generally rangebound in 2017 following the significant downtrends that started in 2011. During that downtrend in commodities, markets have been operating on loose monetary policy based on the flow of funds from central bank balance sheets and ultra-low interest rates. Now these fundamentals are shifting with balance sheet reductions, interest rate hikes and increasing hawkish central bank sentiment around the globe. With the fundamentals transitioning from one psychological paradigm to another one, increased volatility and choppy price action may start to creep back into the markets.
There have been no summer doldrums in the forex markets. Starting with the Canadian dollar, the Bank of Canada (BoC) completely surprised markets last month with an interest rate hike. The start of monetary tightening in Canada now gives the CAD fundamental support for the rally that has taken place for much of this year already. So the correction this week just ahead of the Bank of England (BoE) interest rate announcement this Thursday, was a fantastic opportunity to buy Canadian dollars versus the Great British pound. The corrective rally moved right into the 61.8% Fibonacci level giving a level of risk reward that worked well for sellers ahead of the UK Super Thursday news event. The BoE was more dovish than the market expected as it cut its inflation and economic growth forecasts amongst calls for gradual rate increases. This divergence in monetary policy between Canada and Great Britain may see the $GBPCAD move to new lows.
The Reserve Bank of Australia (RBA) released their monetary policy statement this week too. While the RBA is hawkish on the Australian economy, they remain adamant that accommodative monetary policy must remain for that growth to continue. As such, the RBA will likely not move on interest rates at all this year. But neither will the BoE. If this remains the case, the interest rate differential and the divergence in economies should continue to underpin the Australian dollar against the Great British pound.
The $GBPNZD was trading in a wide range while we saw the aforementioned breakdowns in the $GBPCAD and $GBPAUD. The $GBPNZD finally joined suit and fell to new lows at the 1.7400 support level. But the $GBPNZD staged a major correction this week that actually saw price move back to the top of the former trading range above the 1.7900 level just before the BoE announcement. While this complete reversal higher seems like bullish price action, hindsight reveals another fantastic sell opportunity post BoE.
So now that the selling opportunities have presented themselves, can the commodity dollars continue to strengthen against the pound? There is another factor at play here that we have not yet touched upon – the weakening U.S. dollar. A weak dollar boosts most commodities since they are priced in U.S. dollars. Higher commodity prices should bolster the commodity dollars higher as well. But this is no guarantee. So take care with your trades. It’s going to be a choppy month with the occasional bursts of volatility as markets ready for full throttle trading come September. Be patient and take advantage of the setups, like these, when they come.
I spend every Sunday with students looking at markets for the upcoming trading week. So I was happy to share this week’s insights with Dale Pinkert this morning of the Forex Analytix Community Experience (F.A.CE.). While F.A.C.E. may be a new community, Dale certainly is not. He is an expert trader who has great experience interviewing the best personalities and experts in the business. So it is always an honor to be asked to discuss my views on markets. The nugget I dropped today that Dale really liked:
Correlations are shot. There are no correlations right now in the market.
What do I mean? Watch my interview and market review to find out.
Now that the markets have opened after the week that ended in a hung parliament, I, a mere trader, can now make exclaim,
Theresa May made the biggest mistake of her short tenure as prime minister. FULL STOP.
She completely discounted the voice and vote of the youth. Since the June 23rd referendum vote, it was clear that young British voters in no way approved of a Brexit. But they didn’t vote. Or so it was reported. In my mind, as a disgusted Democratic sitting in California, why would the Prime Minister ever give the citizenry an election so soon after she stepped into office? Americans are waiting excruciatingly for the 2018 midterm elections. Can you imagine trump ever declaring a snap election to prove a point? We could only hope. But I digress. Back to Great Britain. As the market rallied in anticipation of the election, I thought it was market cheer for a new change in Parliament. Surely, folks would oust the party that campaigned for and got their Brexit. The youth were not going to make this mistake twice.
Theresa May deflated, tuition fee liar Nick Clegg gone for good, a hard brexit in smithereens. That was us.
— Reni Eddo-Lodge (@renireni) June 9, 2017
And that’s exactly what they did. The Party of Brexit lost its majority hold. And the voters gave that majority to NO ONE. Fucking brilliant. If Prime Minister May was truly engaged with the public, she would’ve never declared that snap election. She counted on increased apathy to secure a mandate for Brexit. And as such, her party not only lost their Parliamentary majority, nobody won the majority. And the hung parliament just completely changed the fundamental landscape for the Great British pound.
For access to the technical analysis, you must be a member. Join.
The Australian dollar set off the new year rallying pretty much across the board. Even after some consolidation, the Australian dollar attempted to push the Great British pound to new lows but failed just below the 1.6000 support level. Since that failed new low that put in a higher low than the previous low, the $GBPAUD has rallied over 400 pips to trade at 2-month highs.
The move to 1.6400 has ran up against resistance at the 38.2% Fibonacci level. Swing buyers at the lows may seek to book profits here, especially ahead of the weekend. But it is unlikely that this $GBPAUD rally exhausts here. Even if the GBP drops on the Article 50 trigger event next week, bids are very likely to step in on that dip. Additionally, the Reserve Bank of Australia (RBA) is concerned with slowing wages in its economy. This concern prevents the RBA from increasing interest rates despite a still-strong housing market. A weak Australian dollar could continue to fuel this rally right into the 1.6700 resistance level. I think that is the line in the sand for the $GBPAUD. There are former highs at that level as well as the 61.8% Fibonacci level. While I expect profit-taking at 1.6700, a break higher will signal that a larger reversal is in play for the $GBPAUD.
The GBP just crashed in epic proportions. The official number is -5% in 2 minutes and 3 seconds.
It is already being called a flash crash because of the sheer scale of it. And the craziest thing about it is that we were on the right side of it. The following quote is from this week’s Quid Report (Volume 79):
The follow-through lower already this week proves correct the assertion in Volume 76 – that the resumption of the long-term downtrend that is the Great British pound has indeed taken place…It is very likely that this bear trend is the direction sterling trades for the remainder of the calendar year.
The rest of the report this week goes on to outline the setups that took place at the beginning of this week. Most of the targets had been hit before the flash crash except for two trades. These positions are up HUGE. I haven’t seen this much money on a single trade in a long time.
I SURVIVED THE FLASH CRASH….
So I immediately issued a tweet to all Quid Report readers. This is not verbatim but it was definitely to this effect:
If you were short the GBP ahead of this flash crash – GOOD FOR YOU! KUDOS! How you manage this trade is up to you. But no one will blame you if you close out these positions for all this big money. Taking big profits is the name of the game!
The new trading week is packed with market-moving economic releases out of the UK. Inflation, the UK jobs report and retail sales are all released ahead of the event risk of the week. The event risk of the week for the Great British pound is the BoE interest rate announcement. All of these releases will give a better picture of the British economy in the aftermath of the Brexit shock. It is very likely that these releases are more robust than the market expects. If so, the BoE will not have a reason to move on monetary policy this week causing the Great British pound to rally further. More sterling strength will allow the pound currency pairs to finish consolidation just as the summer doldrums have officially come to an end.
How shall we trade the GBP this week?
Well, we came into the week with a ton of GBP strength.
With CPI and regular wages both weaker than expected, inflation is not raging at all in the British economy.
The lack of inflation in wages, though still relatively high, will keep the BoE away from any tightening measures. Coupled with weak consumer prices, the BoE may signal a further loosening monetary policy this week. As such, the GBP strength that started the week is starting to fizzle as we get closer to the actual Bank of England announcement this week. The Friday close will be significant for direction sterling into the end of the year. The summer is officially over. Volatility and traders are back and with them a clear trend is likely to emerge.