The 2nd trading week of the year ended very bullish for cable. But the USD is not that weak…yet. There is room for the GBPUSD to correct lower. As the market opened today, cable tried to go higher but is succumbing to sellers defending 1.5900. That level is only a matter of time though. I like how 50 put it during his webinar chat today:
A move lower is high probability if 1.59 holds but it remains to be seen if there will be another stab at the lows or a correction for another move higher.
My vote is for the latter.
The most surprising bull rally last week has been in the GBPAUD. I expected a corrective rally to the previous low at 1.5766 when spike lows into 1.5150 held. But the continuing breakout beyond that level was unexpected in its strength and resiliency as we see very shallow retracements all the way up to the 1.6080 highs.
Watch for 1.6000 to hold on support on dips. A decent retracement sends us to the 1.5900 level before heading higher. A break below there targets more significant retracement to 1.5650s. A move higher targets 1.6150 previous highs.
The EURGBP also had a surprise rally for over 300 pips last week back to the 85 pence level. But sellers were waiting there and defended that level very staunchly as the pair made a high at only 0.8499. The ensuing selloff took the pair all the way down to 0.8390, the 50% Fibonacci retracement level of Friday’s move. EURGBP bounced off those lows moving higher into Friday’s close. But as the week opens the pair continues to find resistance at the 50% Fibonacci retracement level of the selloff from the 0.8499 high.
Thus, the EURGBP remains bearish. The rally to 0.85 allowed prices to reset for another stab at the lows. Downside target remains at 0.8250 then 0.8000. Uber bears have made calls for 0.7800 and 0.7500. I maintain my stance that only price above 0.8500 changes the bearish bias of this pair.
I sat quietly on the sidelines last week. I took pictures of the daily chart on Jan 3 to see where what levels I had on my charts at year end and how the new year was shaping in regards to the long term trend and the price action of the past year.
Though price action seemed bullish, it was when I took a look at the monthly and weekly charts that I gained much better perspective.
From this perspective, price action is bearish and has been bearish for quite some time. Since breaking below the 100-wk simple moving average 3 weeks ago, price continues to find resistance at this level. Coming out of the blur of the 2010 bull run, the 2008 lows was a new low and the correction rally that marked much of 2010 was just natural retracement in a 3-yr long bear trend.
“The only trend that matters in 2011 is the long term trend.”—
That is my prediction for 2011. I traded into the new year. And now that it is 2011, I’m taking the week off. A very interesting week to be on sidelines but a nice vantage point to see in which direction trading in 2011 might kick off.
PREDICTION A: The consumer will disappear. The saver will reemerge. With the holiday season officially over, individuals will become savers again. Households still saddled with debt and fortunate to have income will service debt and save the rest of their money. As consumers in G7 economies slow spending, consumer goods exporting economies like China and Germany will continue to grow but perhaps at slower rates. Surplus countries like China will continue to diversify out of the USD with hard assets. This bodes well for commodities and the economies that export them.
PREDICTION B: The GBP will continue its rally versus the USD but slump against EUR and AUD. The British economy will succumb to inflation, over exposure to bad European debt, savers in the economy rather than spenders or any combination of the three. The market has not given Britain its just attention in this respect as Europe, the US, and Asia continue to overwhelm the headlines. The MPC seems to have spent 2010 happy in this background and hunkering down for 2011. But the central bank will have to respond to the bleak economic aspects especially if the market catches wind in the form of widening yield spreads.
Despite the bleak fundamentals for sterling, America’s deficit spending will weigh on the greenback. Any currency backed by over $1 trillion in credit can’t be sustained in the long run without massive and painful deleveraging. The market will get this. And it is why the US will remain at war, where ever. Risk aversion is the only bailout that can keep the USD supported for now.
PREDICTION C: Mobile will be the new long term trend in technology. Screens will get larger not smaller making tablets a hotter commodity than smartphones. Android will rule as Google makes more treaches into so called emerging markets.