Wow, I’m A Trading Indicator Now
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Tag Results: analysis
“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:
- The UK economy was recovering more robustly than previously expected.
- 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.
(via fmfx)
My article this week on StockTwits.
Fundamental Analysis: German CPI
European traders anticipate the publication of the German CPI. The German Consumer Price Index (CPI) 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)
I will be interested in markets’ reaction to inflation data. Deflation, if it comes in as expected, should be taken as good news by the European credit markets as falling inflation is good for bond prices.
fmfx:
Cable continues to rally since FOMC minutes, BoE minutes, and NFP. The USD is weakening in the face of poor fundamentals and increasing risk appetite. Will it last?
The 3rd time was, INDEED, the charm as GBP/USD rallied to a high today of 1.6304.
Trading Strategy for BoE Rate Decision Tonight
fmfx:
Fundamental Analysis: Interest Rate Decision
The Bank of England (BOE) decision on short term interest rate is due to be published tomorrow (Jan 7). The decision on where to set interest rates depends mostly on growth outlook and inflation. The primary objective of the central bank is to achieve price stability. High interest rates attract foreigners looking for the best “risk-free” return on their money, which can dramatically increases demand for the nation’s currency.
A higher than expected rate is positive/bullish for the GBP, while a lower than expected rate is negative/bearish for the GBP.
Analysts predict that the rate will remain at 0.50%.
(the above analysis via Forexpros)
Though the rate is expected to remain steady, traders will be looking for sentiment regarding the BoE’s quantitative easing (QE) policy. Any signs of exiting QE will be bullish for the GBP while any signs of prolonging or even extending the QE policy will be quite GBP negative.
I fully expect BoE minutes to be dovish - kinda like what we saw from FOMC - and the market will spike on GBP weakness on its release. The difference, however, is that the markets expect the BoE to be dovish. Market actually expected a more hawkish Fed. So I do not expect GBP weakness to last. The technical outlook poises both the GBP/USD and the EUR/GBP to gain further GBP strength especially as it turns out that the Federal Reserve is not so hawkish anymore and the EU is more debt-burdened and economically fragile than previously thought.
GAME PLAN
I am looking to short the EUR/GBP on any spikes. I have limit orders set up all the way to 0.9100 where a break of this whole number opens up price to the November 30/December 1, 2009 highs at 0.9150. Expect price, however, to find resistance and pause or reverse at 0.9050.
For the GBP/USD, I have limit orders set to buy the pair on GBP weakness. Keep an eye on support levels on cable at 1.5963 and 1.5934, the lows this week. I think GBP/USD will be unable to break and sustainbly hold below these levels and we see the pair rally.
As always, trade what you see, not what I think.
fmfx:
GBP/USD managed to make a new low this session at 1.6024 to start the Christmas week of trading and complete the quarter to 1.6000 large quarter point and major whole number.
Next major ST support lies at 1.5801, the whole number preceding the large quarter point at 1.5750; then 1.5750 large quarter point itself; and lastly, 1.5701 - close enough to the 1.5700 whole number.
I was wrong to stand in the way of this train this morning trying to long cable. It was also unwise to trade the pair without adequate study at the start of the week to see if my plan from last week still holds. It did as price made its way to 1.6000 large quarter point, whole number, and major psychological level.
This morning, @50pips was wise to remind us that our number one rule is to preserve our capital in these kind of thin markets. As such with 1.6000 quarter completed, I am staying away from GBP/USD pair for the rest of the week, possibly through the end of the year. Merry Christmas lesson to me.
Besides, the risk:reward doesn’t make sense for me until price can find its way below 1.6000 and hold 75 pips below the whole number. Both those conditions must hold in order for me to take a trade on cable before 2010.
Forexpros Daily Analysis Dec 21, 2009
Fundamental Analysis: GDP
Tomorrow, Dec 22, the Gross Domestic Product will be published in the UK, USA and New Zealand.
The Gross Domestic Product (GDP) is the broadest measure of economic activity and is a key indicator for the economy’s health. The quarterly percent changes in GDP shows the growth rate of the economy as a whole.
A higher than expected reading should be taken as positive/bullish for the currency, while a lower than expected reading should be taken as negative/bearish for the currency.
Forexpros Daily Analysis Dec 17, 2009
Fundamental Analysis
German Ifo Business Climate Index — The German Information and Foschung (IFO) Business Climate Index determines the business sentiment and conditions in the Euro-zone. The reading is concluded from survey of about 7,000 businesses. 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.
Analysts forecast a reading of 93.90, down from 94.50.
Forexpros Daily Analysis Dec 15, 2009
Fundamental Analysis: Interest Rate Decision
The Federal Open Market Committee (FOMC) decision on short term interest rate is due out tommorow (Dec 16) in the US.
The decision on where to set interest rates depends mostly on growth outlook and inflation. The primary objective of the central bank is to achieve price stability. High interest rates attract foreigners looking for the best “risk-free” return on their money, which can dramatically increases demand for the nation’s currency.
A higher than expected rate is positive/bullish for the USD, while a lower than expected rate is negative/bearish for the USD.
Analysts forecast that the interest rate will remain at 0.25%.
This post marks my partnership with ForexPros.com, another milestone for me. I will post some analysis from them right here. Of course, I have to agree with it. No blind posting.
After today’s trading session, cable did not break out to the downside as I had planned for. No problem because your plan can work in the opposite direction too. The key is to have a plan and patiently let reality (the markets) develop.
This article is the first one for me that really came easily. It really flowed. AND a retweet from Howard Lindzon himself. The article is officially awesome, lol.
I’m starting to find that balance….
0.8950 is SERIOUS resistance. Look how many attempts were made at on the way down as it served as the upper boundary of an area of support then.
Now yesterday’s rally failed to break the 0.8950 price level and exhausted at a high of 0.8947. Technically, no real cause for concern as the pair is still consolidating. Fundamentally, if, in fact, the risk trade is causing the EUR to surge then this rally could continue. This time though, the risk trade is a little different. Rather than being driven by poor economic data, risk is being fuled by the rally in gold, oil, and other commodities that is giving traders the appetite to buy riskier assets. In fact, the USD continues to weaken despite poor US economic news that would have usually driven investors to safe-haven assets. On the other hand, the BoE just keeps getting more and more dovish. The minutes revealed a discussion on cutting interest rates. WTF?! I don’t see how the GPB can rally even in the long term until the BoE takes steps towards tightening monetary policy. I’m actually targeting 0.9000 for this currency pair. Price action at this major whole number and psychological level will be very telling.
As you know, trade what you see, not what I think.
I’m proud of this article. It took me 3 days and the final version is so far from the initial draft. My HS English teacher always said that was a good thing.
The EUR/GBP is just sitting there! This is a 10 minute chart looking like a 1 hour chart. Ha! This market is seriously just waiting on US 3Q GDP release tomorrow morning. The market actually expects +3.2% with economists hoping for a much stronger reading. WOW! Talk about over optimistic. I actually expect a small decline. If there is growth, it will be small and, therefore, a disappointment to the markets. In this risk-dominated market environment, this will lead to a tumble is riskier assets and the EUR will weaken further against the GBP.
