GBPUSD – Still Aiming for 1.3000?

GBPUSD – Still Aiming for 1.3000?

Chart Of The Day

Although cable rose today on general anti-dollar flows the rebound was rather anemic and the pair still remains mired under the 1.3200 resistance level as short continue to circle the unit. Earlier today the OECD noted that risks of a slowdown in UK have increased while reports also circulated that the EZ was demanding a full plan for Brexit from UK within the next two to three weeks.

Theresa May’s government appears to be in disarray with the second minister resigning within a week and many experts doubt that her stewardship may last much longer. In the meantime, the market will get a look at Industrial and Manufacture production data as well as construction output which may have contracted sharply.

All of this may put fresh pressure on cable and send it below 1.3100 once again as shorts prepare to assault the key 1.3000 support level sometime next week.

GBP/NZD – Aiming for 1.77

Chart Of The Day

GBP/NZD – Aiming for 1.77

On a fundamental and technical basis we believe that GBP/NZD is headed for further losses. Fundamentally sterling is weighed down by Brexit fears -- over the last two weeks, there’s been a lot of talk that Article 50 will be invoked early next year and both sides appear unwillingly to concede on key terms. After 2 months of calm, this reminded everyone of how messy Brexit will be. In the coming weeks we expect GBP to remain under pressure as more headlines like these stifle rallies. NZD could also remain under pressure but is likely to outperform GBP. While the RBNZ made it clear this week that “further policy easing will be required,” they don’t meet again until November so between now and then, investors will still be attracted by New Zealand’s 2% carry. The sell-off in NZD/USD has also taken the pair to support at the 50-day SMA whereas the next key level for GBP/USD is not until the August low of 1.2866.

gbpnzd92616
Technically, we would like to highlight the 4 hour chart of GBP/NZD. Having hit a low near 1.76 on Tuesday, the currency pair has staged a strong recovery. However the presence of multiple moving averages above (50, 100 and 200-period) along with lower highs and lowers signal the potential of a deeper correction that should take the currency pair to at least 1.78 and possibly even 1.77. The daily chart also shows the bounce fading with significant resistance at 1.80.

GBP/USD – Aiming for New 6 Year Lows

GBP/USD – Aiming for New 6 Year Lows

Chart Of The Day

GBP/USD – Aiming for New 6 Year Lows

Sterling started the week at a fresh 6 year low despite stronger than expected consumer credit and mortgage approvals. Brexit remains an overarching concern for the U.K. and its currency but the real test for the pound this week will be data. Manufacturing, service and construction sector PMIs are scheduled for release and if activity weakens, it could be the nail in the coffin for the pound. The PMI reports are some of the most market moving pieces of U.K. data and according to the Confederation of British Industry, manufacturing orders dropped by the largest amount in 4 months. If this data is right in predicting an overall slowdown in manufacturing activity, then data could pressure on sterling this week.

Technically lower highs and lower lows leaves GBP/USD firmly in a downtrend. With the 1.40 support level broken, the next stop for the currency pair should be the March 2009 low near 1.3660. A break above 1.4043 would be needed for a stronger recovery towards 1.4200.

GBP/JPY Aiming for 196/200

GBP/JPY Aiming for 196/200

Chart Of The Day

GBP/JPY Aiming for 196/200

We like the U.S. dollar and we like the British pound because the Federal Reserve and the Bank of England will be the first 2 central banks to raise interest rates (in that order). This morning’s MPC minutes were hawkish and reading between the lines, there’s a very good chance that at the next meeting, more than one member will vote to raise rates. The hawkish monetary policy biases of the Fed and BoE is positive for GBP/JPY and not only do we expect the pair to hit 196 but we believe the move could also extend to 200. UK retail sales are scheduled for release tomorrow and based on the rise in wages, stronger spending is expected and if we are right, that could take the currency pair above 194.00.

Technically, GBP/JPY is consolidating between 192 and 194.40. If it breaks to the upside and we think it will, it should be a clear shot to the June highs. After that, 200 is in focus because not only is it a key psychological level but also the 61.8% Fibonacci retracement of the 2007 to 2011 decline. However if GBP/JPY breaks below 192, it could sink down to 190 at which point there is a risk of a double top. With that in mind we don’t think the uptrend will break.

BK EUR/GBP Out for +40

Swing

Out of EUR/GBP +40 on trade

BK -- Close 1/2 EUR/GBP at 0.7226 for +40, move stop on rest to our average entry price of 0.7266

EURGBP Second Entry Triggered. Now short 2 lots with average price of 0.7266

BK EUR/GBP Big Trade – Aiming for Another Test of 70 Cents

The Trade:

SELL EURGBP

Place Order to Sell 1 Lot EUR/GBP at market (now 0.7203)

Pace Order to Sell 1 More Lot at 0.7328

Stop at 0.7460

Risk on our BIG TRADES is large, so make sure your position is small.

We will manage the take profit dynamically and send out alerts on when to take profit and/or move your stop.

—--

Revisiting Our Monetary Policy Divergence Trade

Since the beginning of the month we have largely seen the euro and British pound move in the same direction but the decline in the euro was far more aggressive, leading to sharp slide in EUR/GBP. However after the launch of Quantitative Easing, the selling in the euro began to ease and today, the euro is rallying while sterling is falling. The decline in the British pound reflects the market’s concerns about tomorrow’s Bank of England minutes and the possibility that it will reflect a less dovish central bank. While this may be the case, it won’t detract from the fact that the central bank will still be talking about raising interest rates and that <em>monetary policy in the U.K. will be drifting further away from the Eurozone in the coming months. The recent sell-off in the British pound was driven by BoE Governor Carney’s concerns about a strong currency but in the same speech he called for gentle rate rises, a view that has been echoed many times by fellow members of the central bank. Just as the prospect of Fed tightening has been extremely positive for U.S. dollars, when the BoE grows closer to raising rates, sterling will take off as well.

Right now we see a good opportunity to sell euros and buy pounds because the European Central Bank just started its Quantitative Easing program and they pledged to continue buying bonds for the next 18 months. The BoE will raise rates well before September 2016. The latest rebound in EUR/GBP provides an attractive level to start scaling into a short position particularly since there is a chance that the BoE minutes could be less dovish. Also, we are looking for an upside surprise in the labor market report after the PMI numbers showed strong job growth in the manufacturing and service sectors.

Technically we are looking for another move down to 70 cents. The 61.8% Fibonacci retracement of the 2000 to 2008 rally near 0.7260 is a key resistance level

EURGBP031715

The Trade:

SELL EURGBP


Place Order to Sell 1 Lot EUR/GBP at market (now 0.7203)

Pace Order to Sell 1 More Lot at 0.7328

Stop at 0.7460

Risk on our BIG TRADES is large, so make sure your position is small.

We will manage the take profit dynamically and send out alerts on when to take profit and/or move your stop.

GBP/USD – Aiming for 1.56

GBP/USD – Aiming for 1.56

Chart Of The Day

We are looking for GBP/USD to make a run for 1.56. There are only two major central banks talking about raising interest rates right now. One is the Federal Reserve and the other is the Bank of England. Both central banks see the current decline in inflation as temporary and while “dis-inflation” is a bigger problem in the U.K. than in the U.S., U.K. officials are more worried about wage growth.
We are not looking for the Bank of England to raise rates immediately but rate hike expectations should adjust after the recent improvements in U.K. data and hawkish comments form U.K. policymakers. Next week’s PMI numbers should reinforce the market’s expectations for 2015 tightening. Based on the improvement in consumer sentiment and rise in industrial orders, service and manufacturing activity should have accelerated in the month of February.

Taking a look at the daily chart of GBP/USD, there is an upward sloping channel that points to a recovery in the currency. While sterling tested the bottom of the channel on Friday, it is likely to bounce off that level and make a run for resistance near 1.56.

GBP/USD Still Aiming for 1.56

GBP/USD Still Aiming for 1.56

Chart Of The Day

GBP/USD Still Aiming for 1.56

The rally in the British pound on Friday was halted by surprisingly weak consumer spending numbers. Despite the decline in the unemployment rate and an increase in wages, retail sales fell 0.3% at the start the year. January is typically a softer month for spending and so excluding auto and gas purchases, retail sales dropped 0.7%. Earlier this week we learned that CPI dropped by the largest margin ever but even with today’s weaker report, we still believe that the Bank of England is on track to raise rates towards the end of the year. More importantly, we believe that the latest pullback in sterling represents an opportunity to buy GBP/USD at a lower level. There are not many U.K. economic reports scheduled for release next week, which means the performance of sterling will hinge upon the market’s appetite for U.S. dollars and euro. Just remember that the overall outlook for the U.K. remains positive so if there is a rally in EUR/GBP, chances are, it may not last.

Technically, the currency pair remains in an uptrend and within the two upper Bollinger Bands. Support is at the 23.6% Fibonacci retracement of the 2007 to 2009 decline near 1.5330. Resistance is not until 1.56.

EUR/USD Aiming for 1.30?

EUR/USD Aiming for 1.30?

Chart Of The Day

Fundamentals

The EUR/USD raced to a high of 1.2886 today on the back of the steep decline in U.S. yields. Eurozone rates also fell but their moves paled in comparison. Both the U.S and Eurozone have their respective troubles but risk aversion has driven investors back into Treasuries. U.S. stocks collapsed today and while softer U.S. data can be blamed for part of the move, the sell-off was also triggered by concerns about global growth and growing fears about Ebola. Unfortunately these fears could intensify before they ease which could lead to further near term weakness in the dollar. Based on the chart above, which compares the performance of the EUR/USD (white line) and the spread between German and U.S. 10 year yields (yellow line), a move towards 1.30 appears likely.

Technicals

While the initial break of 1.28 failed to broken in a meaningful way, we believe that another probe above that level is likely. As the 61.8% Fibonacci retracement of the 2012 to 2014 rise, 1.2800 is a very significant technical level. If the currency pair closes above that level, there is no major resistance until 1.30, although 1.29 could be a temporary stopping point. However if EUR/USD fails to recapture the 1.2800, a drop back towards 1.26 is likely.

GBP/AUD Aiming for 1.83

GBP/AUD Aiming for 1.83

Chart Of The Day

Fundamentals

Between the new high in sterling and the steep decline in the Australian dollar, we have seen a very nice rally in GBP/AUD this week. Tomorrow the ECB monetary policy announcement and the Non-Farm Payrolls report will be center focus but given the right conditions GBP/AUD could also be a big mover AND more likely a big winner. This week, further improvements in U.K. data drove the British pound to fresh highs. According to the latest PMI report, construction sector activity expanded at its strongest pace in 4 months. This follows similar strength in manufacturing activity. While the central bank left the market confused about their willingness to raise rates, the numbers don’t lie and the latest economic reports is just the evidence that investors needed to solidify their belief that the central bank will be growing more hawkish in the coming months. The PMI services index is scheduled for release tomorrow and if service sector activity also accelerates, GBP/AUD could soar towards 1.83. In contrast, the 30% decline in iron ore prices this year is finally catching up to economy. In the month of May, Australia’s trade deficit hit 1.9 trillion, six times worse than expected. This was the largest trade deficit for Australia in 18 months. AUD will remain in focus over the next 24 hours with retail sales and the non-manufacturing PMI report scheduled for release. If service sector activity contracts alongside manufacturing it will put additional pressure on AUD.

Technicals

Taking a look at the daily chart of GBPAUD, the currency pair is still in consolidation mode. However if it breaks above 1.8200, it should be clear sailing to 1.83, the 38.2% Fibonacci retracement of the 2014 decline. Our call for GBP/AUD is based primarily on fundamentals but support for the currency pair is at 1.80.

NZD/JPY – Aiming for Fresh Multi-Year Highs

NZD/JPY – Aiming for Fresh Multi-Year Highs

Chart Of The Day

Fundamentals

With the Reserve Bank of New Zealand expected to raise interest rates for the first time in years, NZD/JPY is poised for a big move this week. Most traders are positioned for a move higher in the currency pair and we believe that new multi-year highs are likely especially with last Friday’s non-farm payrolls report triggering renewed upside momentum in USD/JPY. Given that everyone expects the RBNZ to tighten, the upside in NZD is dependent on the central bank’s guidance. If they suggest that this marks the beginning of a longer period of tightening, NZD/JPY will soar. If they sound noncommittal, say that future movements are data dependent and complain about the strength of the currency, NZD/JPY could experience the classic buy the rumor sell the news type of post RBNZ price action. Considering that the central bank sees rates at 4.75% by March 2016 (current rate is 2.5%), we think that Governor Wheeler will reiterate his commitment to normalizing monetary policy, which is positive for NZD/JPY.

Technicals

The closest level of resistance for NZD/JPY is Friday’s high of 87.95 and beyond there, we need to turn to the monthly chart for further resistance. The psychologically significant 90 level comes next followed by the 2007 high of 97.77. Support in the currency pair is at 86, the former resistance turned breakout level.