It was FOMC DAY in the #FXRoom yesterday. A big day for a big interview and Dale Pinkert (@forexstophunter) at FXStreet didn’t disappoint. We talked about the how the $FED may effect markets just a few hours later. I run through some chart art on the $GBPUSD, $EURGBP, $GBPJPY, $GBPAUD, and $GBPNZD. This is my 1st interview since launching Quid Report. So I basically talk through this week’s issue giving traders a sneak peek into my new project. Enjoy the video!
Will the RBA let the Aussie strengthen?
When the Reserve Bank of Australia (RBA) made no changes to monetary policy, the AUD managed to strengthen. In light of the recent strength, the RBA has taken to jawboning to weaken the Australian dollar. RBA Governor Stevens released comments as the new trading week opened that sent the AUD lower. Despite the strong jobs report last week and heating housing market in Australia, the RBA still has interest rate cuts on the table for future monetary policy adjustments. In fact, the RBA feels like the AUD can stand to move lower still. These remarks have already sent the AUD lower across the board in early trading.
Since the rally to 2.0027, the $GBPAUD has been on a corrective move lower. This move lower has allowed the overbought momentum that took the $GBPAUD to those multi-year highs to work lower. While still firmly planted in bullish territory on the RSI, momentum is at more reasonable levels. Momentum suggests that a rally higher is still a strong possibility as the RBA sets out to weaken the AUD. Additionally, since the break above the large 38.2% Fibonacci level at 1.9188, price has not managed to close below that level. Even on the decline to 1.8827, the $GBPAUD still closed that month back above the big 38.2% Fibonacci level. Just as hawkish fundamentals were set to push the $GBPAUD lower, the RBA has stepped in to keep the doves in place.
After price moved to 1.8827, the $GBPAUD made a failed high right at the 1.9650 resistance level. This failed high is supposed to result in a new low below the 1.8827 low, presumably into the 50% Fibonacci level at 1.8612. But this move lower is a tough go. The market has been unwilling to move lower despite the failed high and strong economic data out of Australia. In fact, price is putting in higher lows on the daily chart. This was not the action expected after a failed Fibonacci move and robust economic data. However, it is now clear that the RBA must be intervening in the currency markets to keep the AUD weak. Now that the RBA has made it very clear that they intend to keep monetary policy accommodative to achieve a weaker AUD, the market has started to move now in accordance.
This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time calls and adjustments to the weekly report. AVAILABLE NOW.
QUID REPORT – NOW AVAILABLE
Election jitters played out in trading last week as the GBP weakened across the board. Economists and financial media took to extreme headlines about sterling volatility spiking due to the uncertainty surrounding this particular general election cycle. The GBP did slide but election jitters did not take the GBP under siege. Rather, the Bank of England (BoE) hold on monetary policy last week gave the GBP a bit of reprieve from the election selling. Without a statement from the BoE after its policy announcement, the market is left to trade on its own expectations for a series of interest rate increases out of Great Britain to begin in early 2016. However, in the past few weeks, BoE members have taken to jawboning to temper those hawkish expectations.
In addition to hawkish expectations and election jitters, trading this month is already fraught with seasonality themes….
Read the full report: Quid Report, Volume 7 (subscribers only).
The Sterling Digest, 28 February 2015: en fuego
This #Merkel vs #Tsipras float strides across streets of Cologne during today’s carnival. #Greece crisis everywhere. pic.twitter.com/G1uYSuLai3
— Maxime Sbaihi (@MxSba) February 16, 2015
Sterling has staged big rallies across the board. Much of this new strength comes on the back of heightened expectations that the Bank of England (BoE) will increase interest rates even sooner than previously expected. As the market fully digests this new timeline in interest rate hikes, sterling has caught bid as traders buy in anticipation of tighter monetary policy.
While a big reason for the rally in sterling, monetary policy is not the only reason. Global deflation, due to the crash in oil prices, has caused other currencies to weaken considerably. As such, sterling has been able to rally to multi-year highs versus currencies like the Canadian dollar, the euro and the Australian dollar. Lastly, the sterling is catching bid as a safe haven currency. The discord between the the new Greek government and the rest of the European Union and continued manipulation by the Swiss National Bank in the francs markets, has traders piling into sterling as the only desirable European currency available. As long as these conditions continue to persist, expect sterling to continue to benefit on the long side in the medium term.
- Unemployment Down, Wages Up in U.K. (Bloomberg)
- U.K. Inflation Slows More Than Forecast to Record-Low: Economy (Bloomberg)
- Great Graphic: US and UK Unemployment (Traders Log)
- UK jobs reports, strong earnings fire up sterling (City Index)
- Does It Count as ‘Real’ Deflation When Prices Hit an Oil Slick? (Wall Street Journal)
- Bank of England increasingly divided on path for interest rates (Telegraph)
- ECB braces for QE as others shift rates (Yahoo! Finance)
My Appearance on FXStreet’s Live Analysis Room
I was thrilled to be back in the #FXRoom with Dale Pinkert yesterday. He brought me in to talk all things GBP covering $GBPUSD, $GBPJPY, $GBPAUD, $GBPCAD. But he also gave me some nuggets of wisdom on the EUR via the $EURUSD giving some confirmation on the $EURGBP. The show unexpectedly became a golden example of how traders come together with different perspectives and expertises to edify one another.
I also give a sneak peek to a new service I am launching very soon. Watch out for it!
My Appearance on Benzinga’s #PreMarket Prep Show
I had the pleasure of joining Joel Elconin and Brianna Valleskey as a guest on Benzinga’s #PreMarket Prep Show yesterday and talk with them about central banks, interest rates, oil and, of course, currencies!
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.
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
The Scottish #IndyRef
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:
- The Sterling Digest: divorce jitters (FaithMightFX)
- The Sterling Digest: ref talk (FaithMightFX)
- The Sterling Digest: Special Edition (FXStreet)
- Lydia Finkley: GBP/USD short at 1.6350 on Scottish referendum (FXStreet)
My Appearance on FXStreet’s Live Analysis Room
Back in LAR, I joined @Forexstophunter to talk all things sterling. Some of the highlights include:
- the $GBPUSD call that FXStreet broadcast
- the bounce potential in $EURGBP
- the new range movement vs CAD, NZD, AUD
Listen to it all below. These charts I discuss in the video are in play now as the trading week opens.
Trade what you see.
The Sterling Digest, 11 July 2014: stalling
Advancement in the GBP trend has stalled this week. Manufacturing and construction data missed this week and the Bank of England’s hold on monetary policy turned out to be a non-event. Sterling weakened briefly on the policy announcement but momentum never really took hold in either direction. Dips were bought but highs were also met with enough offers to keep price capped for another week. This stalling, sideways action is simply consolidation of the bull rally that has gained strength in the past month. Now as the 1st full week of trading of the 3rd quarter comes to a close, sterling remains in a tight range. Despite the tepid price action this week, sterling remains fundamentally strong. Between the US Federal Reserve and the European Central Bank, the BoE looks tremendously hawkish. Until that contrast changes, it is enough to keep sterling supported long term.
- BoE holds fire amid fears of sterling strength (CNBC)
- Time For a Long Term Play in Cable, No the Other One (Dragonfly Capital)
- Euro/Pound extends down trend (Futures Magazine)
- World Cup lifts UK consumer spending growth to 4-year high in second quarter – Visa (Reuters)
- Household debt serious threat to UK recovery, says Bank of England deputy (The Guardian)
- Why AUD and GBP are off to a Strong Start in July (Traders Log)
- End of month thoughts: World Currencies Cup (Piptrain.com)
- Goldman: Revising Our GBP Forecast Higher & Our EUR Forecast Lower (eFXnews)
- Lydia Idem Finkley: GBP/USD buying opportunity at 1.7060 (FXStreet)
- More Dips, Same Trend (FMFX)
- Healthy Dips Make for Healthy Trends (FMFX)