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Tag: GBPNZD

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More Evidence of Sterling Strength

Yesterday, I outlined the case for a potential rally in sterling via the $GBPUSD currency pair. But there are other sterling pairs that are also showing potential for GBP strength as well. Let’s look at two of those pairs.

EUR/GBP

The $EURGBP had a bearish divergence as it found resistance yesterday against 0.8500 major psychological level. However, sterling weakened tremendously into today’s Bank of England (BoE) rate announcement (the 1st of 2Q2103) causing the pair to spike above 0.8500 to a high of 0.8521. Now that the event risk has passed, the pair has moved lower and looks to target support at 0.8400. A break below targets the 50% Fibonacci level at 0.8285 giving GBP a 200-pip rally.

EURGBP daily chart

GBP/NZD

The $GBPNZD had a bullish divergence yesterday even as it dropped to new lows at 1.7909. The pair rallied to the major psychological level at 1.8000 where it found resistance into the BoE rate announcement. However, like $EURGBP, after the announcement sterling strength pushed the $GBPNZD above 1.80 to a high today at 1.8054. Even on today’s intraday pullbacks, price is managing to now find support at 1.80. If this level can hold as support, this pair can rally back to the resistance zone between 1.84 – 1.8450. A break above this resistance has the potential to rally to 1.8900, the 50% Fibonacci level of the entire breakdown, giving GPB in this pair a 900-pip rally.

GBPNZD daily chart

Given these daily charts, I have to stress that GBP strength goes against the very strong bear trend that has seized sterling since the beginning of this year. Any rally will be VERY choppy, meaning, highs will be met aggressively by sellers. We have seen this in $GBPUSD just this week with highs at 1.5260 on Monday being sold to 1.5075 lows; and again with Tuesday highs at 1.5150 being sold to 1.5033 today. Therefore, it is prudent to take profits at resistance levels rather than hold for large swing moves. It is also prudent to pay close attention to the BoE. If the vote shifts to more members wanting additional QE or if an actual QE increase materializes, all bullish bets are off. However, the converse is also true. If fewer members call for QE and monetary policy continues to be on hold, a sterling rally can really take hold. The BoE minutes are due out in a couple weeks. That will give us our first 2nd quarter impression of what the BoE sentiment really is.

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Sterling Digest, April 1 2013: the quarter for sterling

A handful of money, UK sterling coins
Start the new quarter with a handful of sterling

Happy new quarter! The 1st quarter of 2013 has seen US and UK equity markets rally into new highs; the euro rally until Cyprus hit; and sterling plunge to new lows all the while. As the new quarter gets underway, it is an interesting time to think about sterling rally. Since Cyrpus has undermined confidence in the European banking system, the $EURGBP has fallen accordingly. Likewise, the $GBPUSD, $GBPAUD, $GBPNZD and $GBPCAD are failing to move lower after hitting new yearly lows. It stands to reason that this next quarter could bring a sizable correction to GBP weakness as sterling enjoys safe haven flows and a central bank on hold until its new governor takes the helm.

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Sterling Digest, March 26 2013: intriguing strength

front page of City AM March 21 2013
Perfect environment for a weaker GBP

Thanks to Cyprus, sterling managed to catch a bid last week on European haven flows. To start this new trading week, however, GBP has traded weak with $GBPUSD, $GBPAUD and $GBPNZD all off their highs of last week. Naturally, sterling still remains stronger versus the euro as the Cypriot crisis still remains. With a relatively light news week from the UK, look for sterling to remain mixed as it gains strength against the euro and possibly the USD but remains weaker against the commodity dollars.

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Sterling Digest, March 11 2013: the charts that worry

Various denominations of GBP in regular visible light
Price doesn’t look this pretty

Sterling did produce a correction rally last week as $GBPUSD made a high at 1.5200, $GBPAUD as high as 1.4850; $GBPNZD as high as 1.8350; $GBPCAD as high as 1.5650; and $EURGBP as low as 0.8590. These rallies, for the most part, kept GBP below previous long term lows. This technical development was certainly the case for the $GBPUSD, $EURGBP, and $GBPNZD where all pairs have broken long term support levels. While the BoE did not move on additional QE, the surprising development of the week was the BoE’s possible change to a dual mandate to combat both inflation and unemployment. With this new trading week very light out of the UK, expect sterling price to continue to weaken across the board. While US news and the RBNZ rate decision will influence those respective currency pairs, the protocol with sterling is clearly to sell the rallies.

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Sterling Digest, February 25 2013: hardly at extreme levels

KAL Cartoon in The Economist
Put GBP on the roof and you illustrate current sterling sentiment in the market

Sterling weakness accelerated last week and culminated in the UK loosing its AAA credit rating on Friday. Now that monetary policy is dovish, economic activity nil, and credit rating downgraded, sterling has entered this new week of trading with a trifecta of negativity. And yet traders are hardly short GBP yet. In fact, I don’t think we will have reached extreme levels of short GBP trades until, $GBPUSD trades at 1.4750, $EURGBP at 0.8900, $GBPAUD trades below 1.4500, $GBPCAD below 1.5400, and $GBPNZD below 1.8000. Until price gets to those levels, expect corrections to be short-lived as the weak sterling trade gains momentum.

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Sterling Digest, February 18 2013: serious shifting

New Design of UK Pound Sterling Coins, Flickr
GBP shifts bearish but not everyone agrees

One of the most interesting bits of news last week that went largely unnoticed was Ray Dalio’s positive take on sterling. Talk about a bold, bullish call in the face of new lows and poor fundamentals. While the week ended with sterling rallying on profit-taking, GBP pairs are still very bearish. $GBPUSD, in particular, is especially vulnerable as it finally shifts below the major 1.5500 level. The $EURGBP is the most bullish GBP pair but that comes at the whim of a weak euro. However, the market hasn’t quite made that weak euro shift yet. And the $GBPNZD has staged a breakout to the downside after 2 years of consolidation. With the BoE minutes and unemployment numbers the only UK releases this week and profit-taking already underway, watch for GBP pairs to shift back to their long-term bear trends or move higher still on more price correction.

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A Kiwi Breakout

The $GBPNZD has officially broken out on the larger timeframes in Wednesday’s trading session. After breaking below the major psychological level of 1.85, the pair has extended losses from there to trade at 1.83 in early Asian trading. At the European open, those losses have extended further to 1.82.

GBPNZD daily chart

Technically, the hold below 1.90, despite the spike highs, set the stage for a breakout to the downside in $GBPNZD. 1.90 marked the bottom of a consolidation range that held for well over 2 years. With the pair now below the 2011 lows, the pair is in uncharted territory trading at all-time lows.

 

gnwk

To trade a pair that has no historical reference, it becomes prudent to either trade the psychological levels that tend to exist at the whole numbers and 50-pip intervals. Because the $GBPNZD moves in such wide swings, a trader can capitalize on moves from whole number to whole number with an eye on how price behaves at the 50 level. Another approach, is to remain on the sidelines as price falls and then enter trades on a correction. After the correction, the pair has left some historical support levels in place that a trader can now use as a guide when prices turn lower.

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Is The Weak GBP Trade Crowded?

Sterling has spent most of the new year in the dog house. It has tumbled against every major currency with the exception of the Japanese yen. $GBPUSD, $GBPNZD, $GBPAUD have broken 2012 lows to reach new lows and are building breakouts to the downside.

Everyone is well aware of the poor fundamentals underlying the weak GBP story. Triple-dip recession looms. A dovish incoming central bank governor spouting his rhetoric before he even takes the helm. Unwinding of the “safe” haven flows that sterling enjoyed while the European Union was imploding. Traders piled in short GBP. Analysts made recommendations to sell sterling. However, even after hitting new lows this week, GBP bears have not been able to gain additional ground lower.

GBPUSD WEEKLY CHART

GBPNZD weekly chart

GBPAUD weekly chart

A crowded trade does not mean a change in sentiment. It is important to understand that the fundamentals definitely favor a weaker sterling. However, GBP has dropped considerably in just a month’s time without significant correction. Nothing moves in 1 direction forever. Profit-taking can be brutal in this environment as swing and position traders who caught the trend early become more cautious with these price stalls at lows. Also, perhaps more importantly, is that the fundamental landscape has become a bit more optimistic in just the past week. UK economic data has surprised on the stronger side. Carney sounded far less hawkish than he did a few weeks ago in his testimony today. While I still think GBP has further to fall in these highlighted currency pairs, it may be more prudent at these levels to wait on the more significant pullback before reloading the swing short sterling trade.

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The NFP Dollars

As the market awaits the first non-farm payrolls (NFP) release of 2013, the Australian and New Zealand dollars have wildly diverged in price action this week. Historically, the 2 currencies move together given their geographical proximity and relation to commodities. But this past week, the AUD has weakened considerably versus the USD while the NZD continues to rally against the USD. The fundamentals have supported this divergence as the RBA is considering interest rates cuts while the RBNZ remains much more hawkish.

As such, I think any interesting GBP trade idea is one that takes advantage the way the USD reacts to the non-farm payrolls report. If the USD weakens, the better play would be the $GBPNZD as the kiwi will advance more rapidly versus a weak USD as it has all week.

GBPNZD daily chart

A weak USD supports a weak $GBPNZD down to 1.85. On the other hand, if the USD strengthens, then taking advantage of the already weak AUD would make the $GBPAUD the better opportunity.

GPBAUD daily chart

A decline in the $AUDUSD would see the AUD also weaken versus the GBP and extend the rally in $GBPAUD to 1.54, the 61.8% Fibonacci retracement level on the daily chart.

NFP in due to be released in 30 minutes. Given how the aussie and kiwi have traded already this week versus the USD, we can take advantage of either a hit or a miss in NFP expectations without direct exposure to the USD volatility.

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Sterling Digest, January 27 2013: follow the trend

KAL Cartoon in The Economist
Can the British economy really afford to abandon the EU?

Last week was epic for sterling. The $EURGBP rallied to new highs above the psychologically important 0.8500 level. The $GBPUSD, $GBPNZD, $GBPAUD, and $GBPCAD all fell to fresh 2013 lows early in the week heading to the Bank of England minutes release. However, when the BoE minutes revealed that it was ready to end quantitative easing and unemployment in the UK fell to new lows, sterling rallied off the lows. In fact, thank in large part to the Bank of Japan, the $GBPJPY rallied to its highest levels in over 2 years. Despite policy makers in the BoE calling for an end to QE, the economic realities of the UK may not allow that to happen. And since BoE meeting minutes are backward looking, sterling may not be able to sustain its Friday gains in this new week of trading. With a very light economic calendar from the UK this week, expect sterling to trade very technically and at the whims of the USD with the $FED rate decision looming mid-week.

 

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