September 4, 2011
USD Weakness Is Still Very Real
As many know, I really only view the USD through the lens of the GBPUSD. The USD has weakened versus GBP and regardless of the catalyst of a USD rally, cable continues to put in higher lows since the July 11th low at 1.5770. So while GBPUSD did put in a bearish week last week, the daily chart still remains bullish as the new trading week opens.
The daily chart played out very technically as the August 24/25 lows broke below the 61.8% Fibonacci retracement levels (purple) of the rally from 1.6100 to 1.6618. A break of the 61.8% Fib usually signals a reversal. And that is what unfolded as the ensuing rally fizzled out and resulted in a new low at 1.6140 on Thursday of last week.
There are a lot of bears out there on cable. And as long as price struggles above 1.6500, it is hard for the bears to go away. But the fundamentals continue to point to a LOWER US dollar. Economic data is deteriorating in the US after a decent first half of the year. The Federal Reserve has confirmed the worst is indeed coming back in the form of QE3. As the year ends, I think we will see worsening economic numbers as the consumer spending decreases in response to the slowdown in manufacturing and labor markets we have seen thus far. And while the UK economy doesn’t bode better, the Fed is much more dovish than the BoE. And for that reason, the fundamental picture favors GBP over the USD.
Technically, I raise my eyebrows at the 3 bearish waves that were unable to break below 1.6100 level. This is a serious level of support and we have seen that candles that have closed above 1.61000 have led to sharp rallies back towards 1.6500.
As the week opens, all eyes should be on 1.6250 to the upside and 1.6150 to the downside. These levels will dictate direction into the open especially with US markets closed Monday in observance of the Labor Day holiday. Over the week, however, the larger levels to pay attention to are 1.6100 if prices remain below 1.6250. If prices find support above 1.6250, the key level for further rallies remains 1.6500. Trade what you see!
The Fed’s Plan - Rumors of News (Bruce Krasting)
 UK economic outlook darkens (The Financial Times)

USD Weakness Is Still Very Real

As many know, I really only view the USD through the lens of the GBPUSD. The USD has weakened versus GBP and regardless of the catalyst of a USD rally, cable continues to put in higher lows since the July 11th low at 1.5770. So while GBPUSD did put in a bearish week last week, the daily chart still remains bullish as the new trading week opens.

The daily chart played out very technically as the August 24/25 lows broke below the 61.8% Fibonacci retracement levels (purple) of the rally from 1.6100 to 1.6618. A break of the 61.8% Fib usually signals a reversal. And that is what unfolded as the ensuing rally fizzled out and resulted in a new low at 1.6140 on Thursday of last week.

There are a lot of bears out there on cable. And as long as price struggles above 1.6500, it is hard for the bears to go away. But the fundamentals continue to point to a LOWER US dollar. Economic data is deteriorating in the US after a decent first half of the year. The Federal Reserve has confirmed the worst is indeed coming back in the form of QE3. As the year ends, I think we will see worsening economic numbers as the consumer spending decreases in response to the slowdown in manufacturing and labor markets we have seen thus far. And while the UK economy doesn’t bode better, the Fed is much more dovish than the BoE. And for that reason, the fundamental picture favors GBP over the USD.

Technically, I raise my eyebrows at the 3 bearish waves that were unable to break below 1.6100 level. This is a serious level of support and we have seen that candles that have closed above 1.61000 have led to sharp rallies back towards 1.6500.

As the week opens, all eyes should be on 1.6250 to the upside and 1.6150 to the downside. These levels will dictate direction into the open especially with US markets closed Monday in observance of the Labor Day holiday. Over the week, however, the larger levels to pay attention to are 1.6100 if prices remain below 1.6250. If prices find support above 1.6250, the key level for further rallies remains 1.6500. Trade what you see!

April 28, 2011
How GBPUSD Could End The Week

Bernanke killed the US dollar yesterday. UK GDP met expectations of minimal growth but growth nonetheless when most market participants, myself included, were expecting a contraction. US GDP was less than expected. All this has built a nice fundametal case for cable bulls. And the charts support.

GBPUSD 60 minute chart

Today’s session sees a nice correction in the $GBPUSD which is fully expected and healthy when a pair rallies 250 pips in 1 day. So far the 50% Fibonacci level has held up as nice support. Cable remains bullish above 1.6592. And I have more confidence in GBP bulls than USD bulls for several reasons:

  1. The pair made 3 attempts to break below 1.6500 and each time was met with bids at 1.6430, the previous resistance level now turned support.
  2. On this latest wave to the upside, 1.6500 held as support.
  3. The fundamentals have deteriorated for the USD. The Federal Reserve welcomes a weak dollar to support the economy and with inflation still relatively subdued in the United States, the $FED is in no hurry to tighten monetary policy. Today’s US GDP report indicates further that the economy still needs support in the eyes of the Federal Reserve.
  4. The market expects an interest rate hike from the Bank of England much sooner than from the Federal Reserve.

Bulls target 1.6750 for a break above while bears target a move back to 1.6500. Trade what you see.

April 17, 2011
The Week Ahead April 17 2011

The EURGBP looks like further declines. Even though it managed to end the week above 0.8940/50 previous resistance, it 1) respected the 50% Fibonacci level on the bounce after the breakdown from 0.8950 highs and 2) made lower highs on each bounce out of the 0.8810s lows.

EURGBP 60 minute chart

A break below 0.8800 targets 0.8750. A hold above 0.8800 targets 0.8900.

EURGBP daily chart

The GBPUSD also looks like it has put in a top at 1.6430, which is the 38.2% Fibonacci level on the monthly chart. Even as price continues to hold above 1.6250, it is the failure at 1.6400/30 that gives the pair an increasingly bearish outlook.

GBPUSD 60 minute chart

GBPUSD daily chart

Bears must hold below 1.6250 to build the momentum needed for price to target the 1.6182 50% Fibonacci retracement level. As long as price continues to remain below 1.6325 at the market open, price is likely to decline towards the 1.6250 support. A hold above 1.6250, however, will have price targeting 1.6400/30 highs again. A break above the highs targets 1.6500. However, only a daily close above 1.6430 will keep cable bullish.

The GBPAUD is a little more uncertain. After its breakdown below 1.5750, the pair became rangebound between 1.5440 and 1.5650. However, during Friday’s trading session the GBPAUD finally broke below the range bottom to a low of 1.5415. However, the pair closed the week back at 1.5440 signaling to me that this was merely a range extension to the downside rather than a breakdown. In addition, as GBPAUD broke to new lows, the AUDUSD failed to break above its highs at 1.0580.

GBPAUD daily chart

GBPAUD 60 minute chart

In my opinion, this pair remains rangebound. Watch these various Fibonacci retracement levels to see if the downside momentum remains. However, I anticipate GBPAUD will rally back to the top of the range at 1.5650 as long as AUDUSD remains below 1.0580. A break above 1.5670 high targets 1.5750. If price remains below 1.5440, expect price to target 1.5300 support.

Fundamentals

  • China PBOC Raises Deposit Reserve Requirement Again (MarketWatch)
  • Gold Over £900/oz As British Pound Falls Sharply - Soaring Inflation Sees UK Retail Sales Plunge Most On Record (Zero Hedge)
  • UK Inflation Plunges As Retail Sales Drop By Most On Record (Zero Hedge)
  • The Euro Is Sliding After Europe’s Worst Nightmare Comes True In Finland (Business Insider)
  • Greece Says No Restructuring Plan in Place as Traders Raise Default Bets (Bloomberg)
  • G-20 Names ‘Too Big to Ignore’ Economies, Downplays Shocks (Bloomberg)

Trade what you see!

April 3, 2011
The Week Ahead April 3, 2011

Technicals

The GBPUSD started last week on a bearish note when it broke below the 1.6000 major whole number level. Since this level was the 61.8% Fibonacci level AND cable had always respected this Fibonacci level, I thought bears were in full force. Nope. The GBPUSD ended the week extremely bullish with its close above 1.6100.

GBPUSD daily chart April 3 2011

As the market opens, watch how price behaves at 1.6100. If price can hold support at this level look for continued strength into the 50% and 61.8% Fibonacci retracement leves. Beyond there is the large quarter at 1.6250. This is the level to watch for clues about direction this week.

The EURGBP remained at the highs after a small correction took it back to the large quarter point at 0.8750. Price found support at this level (to the pip) and rallied to new 2011 highs at 0.8850. After the highs, price corrections now find support at 0.8800 to close the week outside the hesitation zone at 0.8829.

EURGPB daily chart April 3 2011

As long as price remains above 0.8800/25, look for price to continue to higher and move towards 0.8900 this week. However, if price breaks below 0.8800 watch how price behaves at 0.8750. A break below 0.8750 and price targets the now-support zone between 0.8620 and 0.8670.

The GBPAUD spent last week in a downward channel between 1.5660 and 1.5450 with lower highs and lower lows. Though price action remains bearish, the price never gained momenutm in either direction last week and closed the week at 1.5500.

GBPAUD daily chart April 3 2011

As long as price maintains its downward channel and continues to put in lower highs, the GBPAUD remains bearish. However, the longer price remains at 1.5500 without breaking lower below the hesitation zone at 1.5425 then odds favor the bulls for a more significant correction of the price breakdown on the daily chart.

Fundamentals

March 7, 2011
The Week Ahead March 6 2011

Despite finally breaking the 2010 1.6300 high, the $GBPUSD was unable to stage a breakout rally as many traders expected if price was to move above 1.6300. Rather, cable has been looking exhausted though it still does manage to maintain its bullish bias as it closed last week above 1.6250. Inflation and revelations of a 3rd BoE hawk have bolstered the $GBPUSD currency pair above the large quarter point at 1.6250. However despite the strong close, $GBPUSD opens the week trading below 1.6250 as the market opens. Choppy price action around 1.6250 suggest that the market is already looking ahead to the Bank of England interest rate announcement on Thursday. Should monetary policy remain unchanged, we could see the now anticipated sell-off in the $GBPUSD finally materialize. If so, 1.6100 remains the big level of contention between the bulls and the bears if the Fibonacci levels on the daily chart fail to hold. Below 1.6100, 1.6030 and 1.5990 become the levels to watch to the downside. If the BoE surprises the market with an interest rate hike, $GBPUSD will breakout towards the 1.6500 large quarter point and major half point.

GBPUSD daily chart March 6 2011

The economic calendar is very light at the beginning of this week. Cable, therefore, will move based on the technicals. Immediately, at the market open, watch to see if 1.6235/40 support holds. Also, watch the Fibonacci retracement levels on the daily chart to see where bulls could step in ahead of the BoE interest rate announcement.

GBPUSD hourly chart March 6 2011 9pm pst

The $GBPAUD continues to hold the range it has forged out for nearly 2 months.

GBPAUD daily chart March 6 2011

Price hit the top of the range at 1.6120 on Friday, found resistance and has since moved towards the middle of the range at 1.5950. If price moves below 1.5950, price will fall to the bottom of the range between 1.5830 – 1.5750. If price finds support above 1.5950, price will move back to the top of the range between 1.6070 – 1.6120.

The $EURGBP continues to remain bullish. Last week, I was concerned that the bears had stepped back in when price broke support at 0.8470. However, price did manage to find support at the level (on the candlestick daily close) despite the spike lows to 0.8458 and move higher to end last week near the 0.8600 highs.

EURGBP daily chart March 6 2011

As the new trading week opens, the $EURGBP maintains it bullish bias as it continues to find support at the former high of 0.8590 and trades around 0.8600 whole number. Bulls look to the highs at 0.8650 and 0.8670. Above there, 0.8700/50 remain the ultimate bull target. Fundamentally, the edge falls to the euro. Last week, after maintaining its monetary policy, the European Central Bank clearly signalled its intention to hike interest rates with very hawkish rhetoric during its press conference. As such, euro has caught a bid across the board. Several banks have now changed their calls to euro-bullish as a result of the fundamental shift in the market by the ECB. It also looks like an inverse head-and-shoulders chart pattern has formed on the daily chart of the $EURGBP which also supports the possibility of a breakout rally in the$EURGBP.

August 21, 2010

How The US Dollar Stacks Up featured on Abnormal Returns (08/17/2010)

My second article featured on Abnormal Returns. Awesome!

August 11, 2010
"It takes a fundamental shift in the market for a currency pair to transistion from one 1,000 pip range to another."

Ilian Yotov, The Quarters Theory

When the GBP/USD made its transition into the 1.5000s, the market believed that 2 things were happening in the UK:

  1. The UK economy was recovering more robustly than previously expected.
  2. 3.1% YoY inflation in the country was still a worry as it still remains well above the Bank of England’s inflation target of 2%.

The market got ahead of itself thinking that robust growth and inflation would be enough to move the BoE to raise interest rates sooner than the market previously expected. Cable bulls gained momentum as evidence of a seemingly strong economy and rising inflation would surely awaken the Bank of England from its monetary policy slumber to not just move on rates but deliver interest rate hikes. POOF!

UK data last week revealed that the economy is just not that strong. The market got its confirmation from the BoE Governor himself as Mervyn King was very dovish in delivering the Bank of England’s Inflationary Report yesterday. He stoked market fears that the BoE would not only hold on monetary policy but was ready to move on more quantitative easing if necessary. The market has has become fearful that a global slowdown is underway and though the economic data has been mildly strong as of late, the UK will also show signs of economic slowing. And that will put the brakes on $GBPUSD’s advance above 1.6000.

July 12, 2010
Fundamental Analysis: German ZEW Economic Sentiment

The European traders anticipate The German Zentrum für Europäische Wirtschaftsforschung (ZEW) Economic Sentiment to determine the sentiment of German institutional investor. Above 0 indicates optimism while below 0 indicates pessimism. It’s a leading indicator of business conditions. The reading is concluded from survey of about 350 German institutional investors and analysts.

A higher than expected reading should be taken as positive/bullish for the EUR, while a lower than expected reading should be taken as negative/bearish for the EUR.

The analysis predict a future reading of 25.20.

(via Forexpros.com)


The Eurozone countries have been showing steady economic activity even as other countries such as the United States and Great Britain have begun to soften. This difference in economic health may serve to support the euro’s rally over the past several weeks. German ZEW will kick off a week full of economic releases out of the Eurozone including CPI, industrial production, and trade balance. If these numbers can continue to come in line with market expectations, euro just may continue to rally.

July 8, 2010
Fundamental Analysis: German CPI

Traders anticipate the publication of the German consumer price index (CPI). The index measures the changes in the price of goods and services. The CPI measures price change from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation in Germany.

A higher than expected reading should be taken as positive/bullish for the EUR (as the common way to fight inflation is raising rates, which may attract foreign investment), while a lower than expected reading should be taken as negative/bearish for the EUR.

Analysts predict a future reading of 0.10%.

(via Forexpros.com)


The ECB has a policy focus on inflation so this data will be watched by the markets to see if it can possibly change the ECB’s monetary policy stance as communicated today by ECB President Jean Claude Trichet.

July 7, 2010
Fundamental Analysis: ECB Press Conference

Traders anticipate the ECB Press Conference. The European Central Bank holds this monthly press conference about 45 minutes after the Minimum Bid Rate is announced. It is about an hour long and has two parts: First, a prepared statement is read; then the conference is opened to press questions. The questions often lead to unscripted answers that trigger market volatility. The press conference, which is broadcasted on the ECB website, is the ECB’s primary method for communicating with investors about monetary policy. It covers in detail the factors that affected the most recent interest rate and other policy decisions, such as the overall economic outlook and inflation. Most importantly, it often provides clues regarding future monetary policy.

If the statement is more hawkish than expected, that is usually good for the euro.

(via Forexpros.com)


Euro rallied strongly for several weeks and has really caught the markets by surprise with its strength in the midst of sovereign debt issues from several countries, most notably, Greece and, more recently, Spain. The ECB is in a very hard position with maintaining a monetary policy that will help these debt-strapped countries without promoting inflation in more robust economies like Germany and France. Despite steadily healthy economic releases from the Eurozone countries, the economic recovery still remains very fragile as debt and austerity issues still grip many countries. The ECB’s tone at the press conference will give the markets a better idea as to how sustainable this rally in the euro really is. Already the EUR/USD and EUR/GBP are positioned for swing trades in either direction. Expect the euro to react to whatever the ECB decides.

July 1, 2010
Fundamental Analysis: ISM Manufacturing Index

Traders anticipate the publication of the Institute of Supply Management (ISM) Manufacturing Index from the United States. It tracks the amount of manufacturing activity that occurred in the previous month.

This data is considered a very important and trusted economic measure. If the index has a value below 50, due to a decrease in activity, it tends to indicate an economic recession, especially if the trend continues over several months. A value substantially above 50 likely indicates a time of economic growth. The ISM index is the result of a monthly survey of over 400 companies in 20 industries throughout the 50 states.

The ISM’s leading quality has been proven over time. During a recession, the ISM’s bottom may precede the turning point for the economic cycle by some months. A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

Analysts predict a future reading of 59.00.

(via Forexpros.com)


The US dollar (USD) weakened SIGNIFICANTLY after the ISM manufacturing numbers to release a MUCH weaker-than-expected number at 56.2. While the good news it that the number is above 50, the market did not like that it is a weaker number than last month’s number which came in at 59.2. Not only did the USD weaken but the US stock markets also plunged after the ISM release. The market continues to fear that the US will slip back to recession (double-dip recession) as manufacturing production drops in the US which also means those businesses will NOT be hiring any time soon.

What is also interesting to note is that the USD, which has been trading on risk since late 2007, has decoupled this week as weaker economic numbers (which used to strengthen the dollar on risk aversion) have now weakened the USD due to poor US fundamentals as was witnessed today. This makes tomorrow’s jobs report all the more interesting.

June 25, 2010
Fundamental Analysis: US GDP

Traders look forward to The Gross Domestic Product (GDP) publication from the United States. It is the broadest measure of economic activity and is a key indicator for the economy’s health. The Annualized (quarterly change x4) percent changes in GDP shows the growth rate of the economy as a whole. Consumption is by far the largest component in the GDP of the US and has the most affect on it. The figures can be quite volatile from quarter to quarter.

A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

Analysts predict a future reading of 3%, same as former reading.

(via Forexpros.com)


Keep risk in mind. The market may weaken the US dollar on a good number as investors become more confident in the US, and thus the global, economy and decide to buy riskier assets like stocks. Conversely, the US dollar may strengthen on a poor number and, thus, weaken the stock market.

May 6, 2010
Fundamental Analysis: Nonfarm Payrolls

Traders of the US anticipate the publication of the Nonfarm Payrolls. The Payrolls measure the change in the number of employed people during the last month of all non-farming businesses. The total non-farm payroll accounts for approximately 80% of the workers who produce the entire gross domestic product of the United States. It is the single most important piece of data contained in the employment report, which considered to offer the best overview of the economy. The monthly changes and the revisions in payrolls can be quite volatile.

A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

Analysts predict a future reading of 187.00K.

(via Forexpros.com)

May 5, 2010
Fundamental Analysis: ECB Press Conference

The European Central Bank holds this monthly press conference about 45 minutes after the Minimum Bid Rate is announced. It is about an hour long and has two parts: First, a prepared statement is read; then the conference is opened to press questions. The questions often lead to unscripted answers that trigger market volatility. The press conference, which is broadcasted on the ECB website, is the ECB’s primary method for communicating with investors about monetary policy. It covers in detail the factors that affected the most recent interest rate and other policy decisions, such as the overall economic outlook and inflation. Most importantly, it often provides clues regarding future monetary policy.

If the statement is more hawkish than expected, that is usually good for the euro.

(via Forexpros.com)

May 4, 2010
Fundamental Analysis: ADP Nonfarm Employment Change

Traders anticipate the publication of the ADP National Employment Report. It is a measure of the monthly change of nonfarm private employment, based on a subset of aggregated and anonymous payroll data that represents approximately 400,000 U.S. business clients. This release, 2 days before the government-released employment data, is used as a predictive to the government’s non-farm payrolls data. The change in this indicator can be very volatile.

A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

Analysts predict a future reading of 30.00k.

(via Forexpros.com)