The Musings of Faith

“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)

“Pros care very much about who is in the markets and why markets are moving. The principles provide a framework for making sense of market behavior, which then can be used to filter the setups provided by charts, cycles, and the like. The really good traders understand markets; they don’t just predict them.”

(via Thought of the Day… « 50’s Blog)

I read this as traders must look at fundamentals even if they don’t trade the news. 50 took it as traders must look at the charts and understand the different levels where flows could possibly change. Two different takes and both right depending on your trading style. I love the differing perspectives.

Friday Showdown: GBP/USD | StockTwits FX

My article this week on StockTwits.

Fundamental Analysis: U.S. Retail Sales

Traders of the US anticipate the publication of the Retail Sales this Friday. The Retail Sales is a monthly measurement of all goods sold by retailers based on a sampling of retail stores of different types and sizes in the US. It is an important indicator of consumer spending and also correlated to consumer confidence and considered as a pace indicator of the US economy.

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 reading of -0.10% for US core retail sales.

“Finally, it is well to remember that we are still in uncharted waters. We do not have any recent experience with financial disruptions of the breadth, persistence, and consequences of those that we have experienced over the past several years. And we have no experience with most of the sorts of actions the Federal Reserve has taken to counter the shock… We will need to be flexible and adjust as we gain experience.”

Now if the central bank of the largest economy in the world can just chalk it up to experience, so can I. Don’t be afraid to do anything.

(via FRB: Speech—Kohn, Monetary Policy in the Crisis: Past, Present, and Future—January 3, 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.

“Whether we get a fresh round of negative UK data, oil backs off its 200-week moving average or/and the VIX further pushes off its 200-week average, GBP will be due to retest $1.6280, then target $1.57.”

VIX, Oil, BRICS & Sterling’s Sell-Appeal : Ashraf Laidi

So far negative UK data and falling oil are playing out at the start of the week. And we see, GBP/USD below MT support and now at 1.6154.

“The market is the engine underneath the economy, fueling services and innovation via capital gains taxes and good old fashioned wealth creation.”

Depressions are Stylish | The Fly (via @The_Real_Fly)

How sexy is that? I love it!

“…the EZ has employed policy stimulus, rate cuts and QE measures slower and less aggressive than the UK… it is more exposed to the troubled Central and Eastern European region and its inflation has eased more rapidly than the UK… USD …strength …was probably driven by investors’ risk aversion and selloff of risky assets amid economic uncertainty. However, as the market continues to stabilize, the dollar is doomed to decline more sharply.”

GBP Remains Undervalued After Rebounding By More Than 10% (via @OFXT)

“Economic indicators have shown that the UK’s economy has rebounded earlier and more strongly than many of its counterparts… The recovery in manufacturing sector has come [faster] than other advanced economies… The pace of slowdown in inflation has been slower than anticipated… The UK export sector… contracted less than other G10 countries on annual basis.”