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Tag: GBPUSD

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Can Sterling Really Rally?

In this week’s Digest, I made the assertion that after a dismal 1st quarter, sterling could stand to rally during this 2nd quarter. Much of GBP weakness has been fueled by the weak UK economy and dovish central bank rhetoric. However, these fundamentals caught a glimmer of optimism from last month’s Bank of England minutes that explained the hold in monetary policy so far delivered. While the market expected more members to join Governor King in favor of more QE, the dove cohort remained the same. What was new to the minutes was discussion that more QE would further deteriorate the value of the GBP. Hence, despite King’s disregard, the rest of the BoE actually is paying worrying attention to the country’s high inflation.

This new rhetoric is hawkish as sterling has been firming across the board. HOWEVER, it has been choppy because the long term trends are still firmly bearish. The $GBPUSD has moved higher but highs continue to be met by sellers parked in at the former yearly lows between 1.5230 and 1.5250.

 GBPUSD daily chart YESTERDAY

Even with an 800-pip rally off the lows, cable still remains in a downtrend. Such a rally targets the 50% Fibonacci retracement level of the entire breakdown at 1.5600. However, traders should understand that any bullish sentiment is strictly short term and again very choppy with plenty of sellers parked at 1.5250.

GBPUSD 4HR CHART TODAY

Despite the sellers, price has been unable to get back below the major psychological level at 1.50. On yesterday’s move down (due to poor UK manufacturing data), I had my eye on the yellow zone marked by 1.5075 support and the 50% Fib at 1.5042. With today’s UK construction PMI release, I suspected that price would spike lower in the 50% Fibonacci level but find buyers and start to rally higher. Instead, price bottomed at the 1.5075 support level and staged a nice rally in today’s price action.

 GBPUSD 4HR CHART TODAY

Price rallies now target 1.5250 yet again and should be expected to be met by sellers again. However, once price clears this resistance zone, look for price to target 1.5300 resistance and then the large psychological level at 1.5500 on its way to 1.5600.

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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 17 2013: dangerous precedent

cartoon depicting Cyprus bailout
Very dangerous indeed

Cyprus has put the PIIGS front and center again just when market participants thought that ship had finally sailed. Citizens of the PIIGS, in particular, should rightfully be concerned about the possible seizure of their bank accounts. Furthermore, if you have money parked in any country that was on the brink of a bailout, you are headed to the ATM right now and to the teller window come Monday. So what does this have to do with sterling? Just when it looked like the weak GBP trend would resume in this new trading week, expect sterling to strengthen on the back of safe haven flows behind the USD, CHF, and JPY. While this is certainly the case for the Monday open, will this new safe haven status really last? With all the news from the UK this week — CPI, BoE minutes, unemployment report, and retail sales — one can have her doubts. Not to mention the RBA and FOMC minutes releases too. Remember it is market reaction to the news, not the news itself, that dictates price action. This week will be no different.

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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, March 4 2013: more stimulus possible

Financial Times front page on September 17 1992
Could history repeat?

As expected, sterling continued its descent and dropped to new lows last week as traders began to short GBP en masse. However, when much-lower-than-expected UK manufacturing PMI failed to produce a selloff on Friday, it became clear to me that perhaps sterling may be due for a bit of a correction. This week, traders are treated to rate decisions from the Reserve Bank of Australia, Bank of Japan, Bank of Canada, Bank of England and the European Central Bank. With poor economic data in the UK and the revelation of more MPC members in favor of additional monetary stimulus, the BoE could surprise the market with more accommodative policies. Any dovish announcement will see sterling break to new lows while a hold on policy could fuel a GBP corrective rally. It should be an interesting week.

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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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Cable Drops to Fresh Lows

And this is the zone (between 1.53 – 1.5230) everyone is watching.

GBPUSD WEEKLY CHART
We have failed 5 times in the past 3 years to break lower (below 1.5230). With COT data showing traders still very light sterling shorts and UK minutes being ultra-dovish, there is a very good chance $GBPUSD finally breaks through this support zone. If so, the major psychological level at 1.5000 becomes the new target for bears short term.

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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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Sterling Digest, February 11 2013: a fading rally

Kipper Williams cartoon, The Guardian
So Carney is not the UK’s savior?

GBP ended last week in consolidation as the technicals were helped in large part to the fundamentals when UK economic data surprised on the strong side and incoming B0E governor Carney surprised markets by steering clear of his dovish Davos comments on monetary policy. All this helped sterling rally last week to new highs across the board. This week holds a light economic calendar from the UK which may allow sterling to continue its consolidation rally. However, watch the current market sentiment to change on a whiff of bad news. With CPI, retail sales, and the BoE Inflation Report out this week, any of these news events has the potential to send sterling back on its long term bear trend.

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