Tag: GBPUSD

The Federal Reserve did indeed delay to move interest rates again last week. But they did change their monetary policy statement with a sentence of concern for the global economy. Equities reacted to this dovish surprise by selling risk assets. Now investors look to the upcoming third quarter earnings season for coincidental evidence to confirm or refute the world’s concern of Chinese headwinds on capital markets. Therefore, the USD did weaken as expected it would on further delay in increasing interest rates. The $GBPUSD rallied to make a new high at 1.5658. While there were many in the market not expecting the interest rate hike, no one was expecting a more dovish statement and negative interest rates plotted on the dot graph. These developments were both very dovish surprises not anticipated nor discussed. The implications for this sentiment to trend could be either damaging for the USD or very beneficial for the USD. As market expectations for liftoff diminish, the USD should weaken accordingly. Despite strong data 2 weeks ago (Volume 28), U.S. data was extremely weak last week. Soft data is only going to delay the Federal Reserve further. Risk aversion in the markets, however, could strengthen the USD as safe haven flows dominate market flows.

Just last week, the data showed a strong U.S. economy that could force the Federal Reserve to raise interest rates this September. Many market participants believed there was no reason for the Federal Reserve not to raise interest rates last week. Apparently, there is a reason to keep interest rates at 0%. And that reason is China. The highly active accommodation out of the PBoC is revealed to be an actual concern for the Federal Reserve. They are concerned enough to further delayed their initial liftoff plans. Inflation is another, more domestic reason why the Federal Reserve will stay put on interest rates. The central bank sees inflation at 1.6% over the next 2 years. That is well below their target of two percent. As a result, the Fed funds futures show diminishing expectations for an interest rate hike in 2015 altogether. The USD cannot rally as markets start to accelerate the unwinding of expectations for increased U.S. rates. Now that the market perceives that the Federal Reserve will not hike interest rates at all, the GBP/USD may begin to break consolidation to the upside for a trend move back to 1.6000. Those spring calls for 1.6500 become very much in play now based on this new fundamental development.

The break to new lows was seemingly a bearish event. The failed high moved exactly where it was supposed to making new lows below the previous 1.5329 low. Price then found staunch support at the 1.5162 level. Supply at this level met bids and rallied higher in trading last week. The $GBPUSD broke well above the sell zone that begins at 1.5413 after the Federal Reserve announcement. Such a move higher moved selling momentum higher into bullish territory. The 1.5500 support level is also a huge psychological level. The USD is likely to weaken further on a more dovish Federal Reserve. If this new sentiment causes extreme volatility in equity markets, however, the USD could actually rally on safe haven flows. Therefore, this buy zone is important to help determine direction for the week. The high last week was just 22 pips from the top of the range. So if the range top holds, the $GBPUSD is actually making a reversal move back to lows. A break or hold of the 1.5450 level is key because it has confluence with the 61.8% Fibonacci level.

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 updates to the weekly report. AVAILABLE NOW.

Each week, I highlight a chart out of the Quid Report.

While the timing still may be unknown, the Federal Reserve remains on track to raise interest rates this year. This makes the $FED the most hawkish central bank in the world. Despite the recent bout of weakness, the USD should rise due to the contrast in monetary policy between the Federal Reserve and the rest of the world. The reason that USD weakness may persist is that the U.S. economy is not strong enough to justify aggressive monetary tightening. While the $FED may be considering a schedule of interest rate hikes, it cannot commit to it with the U.S. economy still so fragile. So even if the $FED surprises markets with an interest rate hike in June, it is unlikely it will spark a change in trend. While there will be a knee jerk reaction when the $FED raises interest rates, the USD could continue to weaken if markets price in a delay in subsequent interest rate hikes for as long as the U.S. economy remains soft.

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.

Each week, I’ll highlight a chart out of the Quid Report.

The bullish divergence on the $GBPUSD weekly chart has been developing all year long. This week’s lows at the open and the subsequent rally have put yet another higher low on the weekly RSI. The bullish RSI divergence suggests, however, that price has the potential to return to the resistance level at 1.5000. Sellers are sure to step in at the major psychological level but can they hold off the bulls that having been building momentum all year?

This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the top of the week, including access to @faithmightfx on Twitter for daily, real-time calls and adjustments to the weekly report. AVAILABLE NOW.

The GBP/USD was unable to push to new lows despite FOMC Chairwoman Yellen’s optimistic comments at the close of last week. The dollar started to rally at the start of the week with cable pushing towards the lows. But the pair found support at 1.4750 and was unable to push lower from there. After much choppy price action between 1.4750 on the downside and 1.4870 on the upside, the USD finally succumbed when the U.S. non-farm payrolls was released on Good Friday. The thin liquidity of the markets, however, was not enough to send the GBP/USD over important resistance at 1.50.

Again, despite the Yellen-induced, lower low from the previous week, the GBP/USD was unable to make new lows on the weekly chart. The markets seized on the headline jobs number missing expectations big on Friday and rallied hard at the end of the week. Due to the holiday, liquidity was exceptionally thin with many market participants gone for the long Easter weekend. So we did not see cable break resistance as many bulls may have expected. This puts me at pause. When the markets open on Tuesday, expect to see the USD weaken as traders come back from holiday and react to the U.S. jobs report. However, will this stick? Personal income and average hourly earnings still rose last month. According to ISM, manufacturing prices increased last month too. Unemployment claims also dropped significantly despite the slow down in hires. While the market starts to reprice The Fed’s interest rate hiking cycle I fear the market may be getting a little ahead of itself. There is still good reason for the FOMC to still raise rates and as early as June.

The daily chart now supports a bullish rally above 1.50. Momentum on the RSI is very constructive. Though still below 50, it seems that momentum bottomed out at the lows of last week. Friday’s rally moved momentum to new highs indicating that GBP/USD bulls will be in control to start the new trading week. Because the dovish fundamentals for the GBP, buyers will have a tough time moving to new highs. If price does break above 1.50, we will need to see confirming action into next week’s trading to really see that the pair is ready for a sustained bullish run.

This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the top of the week, including access to @faithmightfx on Twitter for daily, real-time calls and adjustments to the weekly report. AVAILABLE NOW.

I asked the question as the week closed on Friday.

For all the geopolitical stress on markets right now, it is no wonder that USD weakness can’t get a foothold in cable. Looming in the background are many geopolitical risks at play. War is waging, energy markets are changing, deflation won’t go away, and yields won’t go higher. Elections around the globe have created shifts in fiscal policy. We see that with Greece. Nigeria voted in a new president and a change of government over the weekend. The U.S. will do the same next year. While equities have remained at highs, perhaps markets are getting a bit more cautious and risk averse. This undoubtedly helps the U.S. dollar along with the Japanese yen and the Swiss franc – our traditional safe haven currencies.

If USD strength is to really breakout, versus the GBP in particular, price will need to break and close 2 CONSECUTIVE candles below the support zone between 1.4750-1.4800. We’ve been faked out before.

While the recent lows were a breakout below support, we got an immediate weekly close back above the support zone. With the bullish divergence here, it looks like a false breakdown may be in place. We’ll get our confirmation this week especially with the economic releases due out this week. IF price holds support, this will be a bullish signal worth taking advantage of.

This is an excerpt from this week’s issue of Quid Report. Subscribers receive my research on all major GBP pairs at the top of the week, including access to @faithmightfx on Twitter for daily, real-time calls and adjustments to the weekly report. IF INTERESTED, SIGN UP NOW AND RECEIVE A FREE TRADING BOOK. AVAILABLE NOW.