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Tag: GBPUSD

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All According to Plan

It’s nice when a trading session goes according to plan. Retracement levels were tested yesterday as sterling consolidates recent gains ahead of Thursday’s Bank of England announcement. We started the week with these charts. We staked out our levels. But it is not enough to make a plan. You have to have some conviction to put your orders on too. It doesn’t pay, if you don’t play. Position-sizing is a very underappreciated skill. It takes more discipline than you would imagine to establish a position in the market with the correct size. Too big a position and the risk may take you out before you can earn the reward. Too small a position and the reward just isn’t as satisfying for your account balance. I find that by scaling into a position, you can spread the market risk across multiple, smaller trades maximizing the best price the market is giving. Once we determine our position, the hardest part of executing any plan is the action of inaction – we wait.

We didn’t have to wait long. Thanks in part to lower-than-expected manufacturing and industrial production releases, GBP fell across the board yesterday. Days like yesterday, you don’t have to do anything. Just watch price. In fact, if you are planning each trade and trading each plan, you should experience more days where you are simply watching price move at the market’s will. When it’s too tempting to watch price action, leave the screens or risk trading carelessly.

After yesterday, we are headed into FOMC with all the charts still in play. $GBPNZD breached its Fibonacci levels so only support at 1.9350 matters to the downside on more consolidation. All other charts ($GBPUSD, $EURGBP, $GBPJPY) stand. Markets will be light and choppy waiting for the 2pm EST release time. Be aware that some market participants will take advantage of lighter flows and size up their positions. When central banks come to the stage, it is the larger timeframes that really keep you focused on true supply and demand in the market.

Game on. Trade what you see.

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Healthy Dips Make For Healthy Trends

After rallying all week to new highs at 1.7176, $GBPUSD is using the weaker-than-expected Services PMI number this morning the excuse it needs to put in a correction. But don’t be quick to call cable bearish. Nothing moves in a straight line forever and retracements are great to keep a trend healthily intact. Corrections allow new positions into the market as those who missed this move will be looking to join the party. That new demand will only add more fuel to the rally allowing $GBPUSD to move to new highs. By working down the RSI reading, corrections indicate new strength can take us to new highs.

GBPUSD 4 HOUR CHART

In light of the ECB press conference with Governor Draghi this morning, $EURGBP also has an opportunity to move higher on a correction too. A correction in this pair may give price the strength needed to finally crack the 0.7950 support zone that has stymied the decline in the $EURGBP for the past 2 weeks.

EURGBP 4 HOUR CHART

Big news day today. Don’t get caught up in the knee-jerk reactions. @50pips put it best earlier this morning,

Trade what you see. Read also:

 

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GBP/USD Bull Runs

Sure, $GBPUSD has been rallying for almost a full year now. It has surmounted key psychological levels at 1.60, 1.6250, 1.63, 1.65 and 1.6750 and now the almighty 1.70. When cable closed last week at 1.7027 above the previous highs (1.6996), it was bullish. When the markets were fully open in Monday’s trading session, price surged higher. Though the rally on Monday was mostly explained by month-end and quarter-end fix flows, I had this to say

And, in fact, the data has supported. Today’s data makes a case that not only has manufacturing picked up but is starting to really go strong. Markets like manufacturing so this data looks really good for sterling. And also puts more pressure on the Bank of England to raise rates earlier than they may want. Bullish fundamentals like this will continue to reinforce this strong bull run in $GBPUSD.

GBPUSD WEEKLY CHART
Green line is current price. Simple support and resistance.

But despite fundamentals, always pay attention to price. Price is banging right up against former lows from (waaay) back in 2005-2006. With the short holiday week, cable may have peaked. Or price could run higher. She can and will do whatever she wants. For many traders who set up before this week, this is and should be a no-risk trade. But as we know, there is no no-risk in the markets. Trade what you see.

 

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The Sterling Digest, 27 June 2014: poker face

So here we are with $GBPUSD back above 1.7000. It is the first time since 2008 since we’ve traded at these levels. To me, nothing is more bullish than $GBPUSD above 1.70, $EURGBP below 0.80, $GBPAUD above 1.80 and $GBPJPY above 170. But the bears are milling and are suspect of these rallies.

piptrain on stocktwits

I admit I’m wary too but for another reason. $GBPUSD hasn’t had a decent correction yet.

faithmight on stocktwits

This was Monday. Since then, $GBPUSD has staged a correction to 1.9950 support from the 1.7050 highs. $EURGBP retraced 38.2% to 0.8030 this week. And I think that’s all we will get. Another Friday close above 1.7000 in cable after more remarks from Carney this week is a bullish indication. The fundamental landscape clearly still supports a strong GBP. What can turn the sterling tide? Mark Carney, of course.

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The Sterling Digest, 13 June 2014: SURPRISE!

Bank of England
BoE preps market for rate hikes

Bank of England Governor Carney has just shocked the market signaling that interest rate hikes could come sooner than the market expects. GBP has skyrocketed across the board on these comments and it should. I just sat in with FXStreet’s Dale Pinkert on Monday saying that UK fundamentals remain strong but I believed that sterling would take advantage of the low volatility and summer trading doldrums to consolidate further. I didn’t think Carney would rattle markets until the August Inflation Report. Instead, he is well ahead of schedule and has put sterling back on track to reach new highs across the board. Already, $GBPUSD has probed 1.7000 and $EURGBP has broken below 0.8000.

Image credit

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The Cable Zones

After a short seasonal consolidation in May, $GBPUSD starts June very tentative and hesitant around 1.6750. Because of its year-long uptrend, any weakness of late has been met with bids and, subsequently, price moves higher. However, notice also that rallies continue to be met by sellers. So who will prevail: buyers or sellers? Watch these areas of support and resistance for the answer.

GBPUSD DAILY CHART

A close above 1.7000 will reconfirm the uptrend and invalidate my current bearish bias. On the other hand, as $GBPUSD weakens, price targets 1.6600-1.6500. In this zone of support, price will either bottom as buyers step in to push price to new highs above 1.7000 or weakness will continue pushing prices lower still. I am a fan of the former scenario because I believe to get above the huge psychological level at 1.7000, $GBPUSD needs to consolidate still to lower levels. Given the price action, this may take all summer.

Read also: Today’s Appearance on FXStreet’s Live Analysis Room (FMFX)

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Today’s Appearance in FXStreet’s Live Analysis Room

It was great to be back in the #FXRoom today with Dale Pinkert. As always, we talked all things sterling including $GBPUSD, $EURGBP, $GBPCAD, $GBPAUD, $GBPNZD and $GBPJPY and the recent behavior in these low volatility markets.

As I told Dale, watch how sterling behaves this summer. I suspect we start to get more definitive moves after the summer doldrums.

Check out my previous appearances:

 

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Is There Any Correlation

Forex traders love to compare the cross currency pairs to the major currency pairs. Even those of us who are firmly in the camp that you trade each chart in and of itself, also like to conspire every now and again. The $GBPUSD has been moving higher all year, closing last week again above 1.70. The $EURGBP, however, closed back above 0.80 after already retracing 38.2% last week. Up until this week, sterling had been trading with good strength in both pairs. Two weeks ago, both $GBPUSD and $EURGBP closed above/below their respective big fig levels. Was Friday’s divergent close a signal of a decline in sterling?

GBPUSD versus EURGBP
$GBPUSD in candles, $EURGBP orange line of close price

Looking at this $GBPUSD vs. $EURGBP comparison chart, we see that these pairs tend to move inversely to each other especially during bouts of GBP strength. This rally of the last several months is no exception. With $GBPUSD already poised at the beginnings of another leg higher, the close above previous its highs is really bullish. If we see new highs in cable this week, we should see $EURGBP move towards the lows again despite the close above 0.80. Likewise, if we see new lows in $GBPUSD on a hold of 1.7050 resistance, perhaps $EURGBP confirms the Friday close and does shoot higher. Mind the calendar and trade what you see.

 

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Cable Clues

I came out of my long position just around break even as the bears trumpet grows louder. I was bullish on $GBPUSD when price bounced off the 50% Fibonacci level last week.

GBPUSD DAILY CHART

But I missed these clues when price revisited former resistance at 1.6920.

GBPUSD 4 HOUR CHART

On the rally last week, I failed to pay attention to the 4-hour chart. I liked how the daily chart was setting up but failed to see what the shorter- time frame was signaling. Worse yet, when price failed 1.6850 (my mental stop) I failed to exit my position. I didn’t make my mental stop a physical stop. I put too much weight in the bullish UK CPI, BoE minutes, and retail sales and not enough weight to price action.

Moral of the story: Stick to your rules for getting out of the trade. Technicals trumps fundamentals. Journal your mistakes so you’ll never repeat them.

 

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