While the $GBPUSD has been bearish since tumbling from 1.63, it turned bullish when it climbed back above 1.5500 after putting in a higher low. This week opened with a 1st test of 1.5800 major support level with the high at 1.5790.
Now the market waits on the FOMC. QE3 is supposed to be revealed today. If so, cable will soar. Support at 1.5800 certainly sets the stage for a return to 1.6000. However, if the Fed decides to wait, the $GBPUSD may fall back towards 1.5500. A break below 1.55 would certainly have bears hoping for new lows below 1.5220.
There is a new theme emerging with the USD BREAKOUT this week. Everything is weak against USD. $GBPUSD has fallen over 650 pips in 4 weeks. It ended last week on a technical break of the 61.8% Fibonacci retracement level of its entire rally off the January 2012 lows. That was the last defense for bulls though their case was lost with price action below 1.60 for 2 weeks now. However bearish cable may be this does not at all roll neatly into a weak sterling story.
On the contrary, sterling is killing almost everything else. GBP is at multi-year highs against the euro. No secret there as to why. But the commodity dollars are also weakening tremendously against sterling on broad-based weakness in commodities. The strong USD combined with slowing Chinese growth is looking to make commodity weakness a new trend in the short-term.
When trading these markets, timing is crucial. The reason for the choppy consolidation around 1.60 in $GBPAUD and $GBPCAD is due to the sterling weakness in $GBPUSD and general GBP strength in $EURGBP and $GBPNZD. The EURGBP close below 0.80 signals more GBP strength; even as the $GBPUSD close below 1.5750 signals more GBP weakness there. The correlation is ironic. But price action is truth. The strong USD — strong GBP theme bears paying attention to as we head into summer trading.
Adam Posen’s flip-flop on QE makes the Bank of England more dovish especially as economic data continues to deteriorate at an alarmingly fast rate. While the $GBPUSD and $GBPJPY have been sterling weak, these pairs’ move lower is also tied to increased risk aversion. Conversely, sterling has remained very robust against the commodity dollars. Both the $GBPAUD and $GBPNZD have already made new highs on the week. Will tomorrow’s UK GDP release be the final nail in the GBP coffin?
G8 summit leaders enjoyed their weekend in a retreat, unconference with very mixed reaction from markets. The open was spent violently going nowhere as cable is still bouncing around 1.58. No momentum or conviction on either side. Sounds like opposing G8 stances, doesn’t it. As the news week gets underway a huge drop in UK inflation that has hit its lowest levels in over a year. Less inflation leaves the door open for more QE at a time where economic data has not been supporting the hawks at the BoE. The market looks ahead to the BoE minutes release tomorrow to see if recent hawks have new dovish feathers.
Mark Zuckerberg rings the Nasdaq bell from California (Zef Nikolla/AP)
$FB is so hot that Nasdaq brought the bell to them. However, $FB Friday didn’t change profit-taking week end flows leaving sterling a mixed bag on the week. $GBPNZD has been a monster breaking out to new highs again this week. $GBPAUD and $GBPCAD, meanwhile, chopped around in wide ranges. And the $GBPJPY and $GBPUSD fell hard. A $GBPUSD close BELOW 1.58 is as big a deal as a close below 125.00 is for $GBPJPY. Those cracks we noted all week in this digest seemed to widen a bit more today.
The market loves magic numbers. And the one on radar is 1.60. GBP is dealing with 1.60 on 3 currency pairs that I follow. This is quite uncanny and ironic but maybe not so much coincidence. $GBPUSD, $GBPAUD, $GBPCAD is a strong dollar bloc. Their breakouts above 1.60 marked technical reversals across this bloc to new yearly highs. But this week’s breaks below 1.60 looks to undo all of that.
Looking back a year at $GBPUSD reveals that a break below 1.60 after breakout above only points to more weakness. What started as a correction has already turned to a reversal in the $GBPUSD today. @EdMatts did a great video explanation so good it was highlighted twice in the Sterling Digest.
$GBPAUD hasn’t held up in the past when it broke below 1.60 after new highs. Where it has held, price rallied for hundreds of pips before topping out.
So now look at the $GPBCAD. It is still holding up as today’s low at 1.6003 is ahead of the big figure even if only by pips. It then bounced over 120 pips to settle at 1.6100 (as of this writing). A close above 1.60 keeps the pair bolstered for a rally higher. But with lower highs on the daily chart, a rally to met by sellers until buyers can prove themselves with new highs.
Nonetheless suffice it to say that 1.60 is a serious psychological level for sterling at the moment. Trade what you see!
Sterling cracks from Friday that were glossed over on safe haven flows deepened today thanks to Bank of England Governor Mervyn King. Complete with a GDP downgrade for 2012, King’s inflation report weakened sterling across board. However, currency pairs like the $GBPCAD, $EURGBP and $GBPAUD are holding up quite well in the aftermath. General commodities weakness and euro woes continue to benefit GBP verus these currencies. These same conditions also benefited the USD as the $GBPUSD closes below 1.60 for the first time in 4 weeks.
The safe haven sterling rallies on. After a dip in GBP on weak UK trade balance numbers, the $GBPAUD, $GBPCAD, $GBPNZD, and $EURGBP continued on in their strong sterling bull trend. The only currencies that gained on the safe sterling today are the almighty rulers of risk aversion: the greenback and yen.
Sterling ends the week weak across the board. Profit-taking was the theme this Friday trading session as investors banked pips on a strong bull trend in sterling that has been raging for weeks. As we head into the weekend, the question that traders start to ask is: did we witness a correction this week or the beginning of a reversal as the market comes to grips with a very weak UK economy relative to others in the G10 such as Canada, Australia, and the US. Watch the major psychological level at 1.6000 in $GBPUSD, $GBPAUD, and $GBPCAD for answers into the new trading week ahead.
The euro sank this week as the Eurozone became unhinged in political elections that ousted leaders who led the charge for austerity. $GBPUSD followed in sympathy but today’s BoE decision to hold off on another round of quantitative easing (QE4) has lifted sterling across the board. As with any strong trend, the contrarians are circling. Many bears are out looking to short sterling especially in $EURGBP and $GBPUSD. But this bull trend in sterling is not one to step in front of. Don’t fight the flows!
