GBP/USD to go lower on interest rate increase?Although the likelihood of interest rate increase from the BoE is high
An unexpected decision or rate increase but paired with negative sentiment, could drive the gbp lower
BOE
Looking to Long EURGBP on Probable Double BottomOverall uptrend on D1 TF. Looking to long if retest at 0.8744. ISL: 0.8724 (20pips), FTP: .9091 (Fibo R 61.8)
Thursday BoE rate decision will see a volatilty in pound. GBPUSD will see a obvious down or up trend.
If there is a rate hike, EURGBP will break below 0.8744 and this analysis will be invalid.
If is a surprise unchanged rate decision, euro will rebound and strengthen against pound
The reward to risk for this analysis is 17: 1
US rally leaves little for NFP to surprise tradersUS Dollar
The dollar took aggressive stance on Wednesday as investors await bullish comments from the Fed and White House while troubled New Zealand Dollar was rescued by a strong labor market report.
The basket of major currencies fell against the greenback, however last week's high at 95.00 seems to have to be conquered again.
The Fed's November meeting is of little interest to investors as the position of regulator for the December meeting is pretty clear, and there is no point in talking about distant prospects, given that Yellen's term is coming to an end in February. A much more important event will be the announcement of a new head of the Fed on Thursday, where the views converge on Yellen’s colleague Jerome Powell. The market estimates his chances at 85%. Powell is a famous follower of gradualism, so his appointment will probably disappoint the markets and will deprive the dollar of some support. For the US stock markets, amid the economic recovery and the tax reform, the prospect of a sluggish Fed is likely to revive interest for staging new records.
Later on Wednesday there will be news on tax reform, in particular the plans of Treasury for auctions to finance the deficit.
Despite the large number of seemingly bullish events for the dollar, I would recommend refraining from buying it until the uncertainty is eliminated. All data indicate a strong report on employment in the US on Friday, but all this should be seen in the context of accelerating growth after natural disasters. The long-term dynamics of the dollar will be determined by the tax reform and the appointment of the head of the Federal Reserve.
In favor of strong NFP report there is an increase in consumer confidence and spending, which also prepares favorable ground for the fourth quarter GDP performance. The early start of the heating season and the seasonal increase in energy prices will create additional inflationary pressures on the economy, which, together with rising oil prices, will have a multiplier effect.
New Zealand Dollar
Economic recovery also reached New Zealand, where unemployment fell to 4.6%, which triggered a wave of long positions for NZD and NZDUSD growth of 0.9%. Suddenly, a steep exchange rate rise after robust labor data was a "relief" rally after the new government announced the isolationist measures - preventing foreign investment and migration. Nevertheless, the policy will take its toll and we can expect further weakening of the New Zealand dollar.
British Pound
The British pound jumped to the high of October on Tuesday, after the European official in charge of Brexit talks, said he was ready to accelerate negotiations on the country's exit from the bloc, thus significantly boosting the spirit of investors who still hope for a pound gain. Theresa May’s spokeswoman also reported on the hiring of thousands of customs officers at the new borders with the European Union - which also signaled the imminent announcement of the final exit conditions.
On Thursday, the Bank of England will hold a meeting, which is likely to announce an increase in the interest rate by 0.25% - for the first time in 10 years. The head of the bank, Mark Carney, took advantage of this monetary tool when he announced the need to rate hike at the previous meeting (which caused the pound to rise to 1.36), so in search of arguments for a strong currency again, he needs to show the readiness of the bank to any consequences of Brexit. With the global economic recovery, rising oil prices, there is a chance that he will have the courage to be more aggressive than expected.
Arthur Idiatulin
GBPJPY 350 Pips Short IdeaSince 9th October, price has been developing correctively towards the upside after the impulsive drop from the 152.87 high.
With price completing a minimum 3-wave move, we are now expecting more downside potential on GBPJPY.
We saw a minor impulse move on the lower timeframe, and should price continue to develop in a corrective manner today and early tomorrow, it will give us more conviction in taking a short trade targeting 145.45 area.
We also have the Bank of England (BOE) rate statement and monetary policy this coming Thursday. This risk event might provide the catalyst needed to develop the next impulse move.
US CPI upside surprise may be undervaluedChinese data
Weak August for the Chinese economy jolted stock markets pointing to addiction of economic growth to credit stimulus. High real estate prices kept high rates of investment in the sector, while industry and retail sales and fixed investment undershoot.
Meeting of the Bank of England
As noted in the previous analytical note, the growing gap between the growth of wages and inflation requires the Central Bank to shift focus from long-term political consequences to current economic problems. The rate hike is unlikely today, but attention should be paid to the results of the voting, which will show how the opinions of the officials were divided. Investors recorded profit on long positions and on the eve of the decision of the Central Bank, the GBPUSD pair found a balance near the level of 1.32.
SNB rate decision
Frank grew in the course of trading on Thursday despite disquiet of the Swiss Central Bank with overvalued franc rate and instability in the foreign exchange market. Rates on deposits and interbank LIBOR were left unchanged coinciding with the forecasts. The regulator does not lag behind his colleagues from the US and Europe and also does not skimp on verbal interventions to devalue the currency. However, the further dynamics of the currency will depend on the position of the Fed and the development of the situation on the Korean peninsula.
Consumer inflation in the US
The growth of the consumer basket in the US is expected at 1.6% in August after 1.7% in July. The rate of growth may be the worst since the beginning of 2015. However, one should not underestimate the likelihood of a positive surprise, given the devaluation of the dollar, the confident comments of Fed representative William Dudley and as a plan reason bad news on the US currency, which can also skew estimates.
Arthur Idiatulin
GBPNZD - Time for a reversal lower?Price has been rally from the low at 1.7398 since end of July to the recent high around 1.8250 region in a 3-wave structure hitting the minimum targeted expectation.
We are now expecting a correction lower potentially towards 1.7853 area.
A break below the trend line structure will confirm the downside potential on GBPNZD.
Dollar, oil and desperate BoESet to take risk
The reassessment of possible damage from Hurricane Irma in a positive direction and the project signed by Trump on providing aid to the victims extended the period of optimism in the US stock exchanges.
The S & P 500 index seems to have fallen into dependence on any positive news, updating records. The dollar remains in limbo, sellers made a halt after a long descent, as the situation with the Fed remains very uncertain. Activity will likely resume after Friday's CPI data. News from the Korean peninsula can also return sellers control over the dollar, taking into account the sanctions imposed by the UN Security Council on Monday.
Prices for oil and natural disasters
The oil market is optimistic about the restoration of the refinery in the US, fueled by rumors about a possible extension of the OPEC + pact until March 2018. Russia second largest oil supply nodded after Minister's Novak hints, now the turn for OPEC. In the short term, oil surplus in the US market may increase due to a fall in demand in the region affected by the hurricane, which will be reflected in the API and EIA reports as an increase in inventories.
Can not escape inflation
After a relative lull on the inflation front, the August price increase in the UK by 2.9% became the maximum in five years. The Bank of England was again under pressure, because:
Preservation of incentive measures in the form of low rates can further accelerate the growth of inflation.
The widening gap between wage growth and rising prices will force households to reduce consumption, but what’s worse - will worsen inflation expectations, which will lead inflation to an uncontrolled trajectory.
Accordingly, the only solution for the Bank of England is to raise the rate despite all the concerns. The pound sterling accordingly reacted by a growth of 0.7% laying the prospects for tightening the policy.
Arthur Idiatulin
Dollar, get ahold of yourself!So greenback short players finally reached for the level of 92.50, staging breakthrough of 1.19 on EURUSD. In our view these moves are a signs of dollar bottoming out as investors adjust their portfolio with fine-entered greenback longs as the updates on US economy is slowly but surely beginning to improve. The US consumer pleased us with increased expenditures, the consumer sentiments index from the University of Michigan remained steady at healthy levels, indicating American people are confidently looking to the future. More importantly, a comment was made by Loretta Mester, president of the Federal Reserve Bank of Cleveland, who optimistically looked at the recent slowdown in inflation, noting the temporary nature of the factors in effect. She said, the economy may need more employment to impetus prices, with unemployment somewhere at 4.75%, downgrading from past estimate of 5%.
Such a view from the Fed official brings back NFP to the game. If the report demonstrates strengthening of the labor market (ie, job growth roughly in line with the forecast, reduced unemployment), one can expect that the chances of a December rate increase will grow. But the report should be unambiguously positive, so that the Fed has a reason to spin off the story about the transitory weakness of inflation. Taking into account that unemployment in June moved from pre-crisis lows, rising by 0.1% to 4.4%, unemployment benefits were not surprising, and ADP report yesterday came out worse than expected, it is difficult to expect from NFP a pleasant surprise. And if the report disappoints, then the calm that the dollar enjoyed at the beginning of this week is likely to change to the next wave of selloff with the next target around 90.00. The dynamics of gold also speaks in favor of the bullish correction of the dollar. Having ceased to torture the defenders of the two-month high at around $ 1270, the market has retreated and is waiting for statistics on the labor market in the US, hoping that the report will allow the Fed to adjust its views, and hence the future yield of the "yellow asset".
Now for today's meeting of the Bank of England. Turbulence in the UK financial markets has diminished significantly - pound volatility has fallen, credit spreads as a measure of risk have also declined, the stock market is growing thanks to the exporters. Progress on Brexit goes in parallel with the dynamics of the market, not affecting it in any way. Markit's report on production and the service sector came out today, activity in both sectors in June expanded faster than expected. For the Bank of England, the main problem remained growing inflation, but it seems to disappear by itself with the stabilization of the pound. In the last month, it has slowed and now officials need not rush to raise rates as the Brexit has not really started yet, the country will have a lot of changes it has to withstand, and the transition should be smoothed with the soft credit policies. It is obvious that with the current stimulation, the British economy will strengthen its positions, which is logical to cause the strengthening of the pound, the stabilization of inflation. But do not underestimate the uncertainty associated with Brexit. It will still remind you of itself and as a risk factor it will be a stone on the neck of the sterling trying to not sink. Today, one should not expect a significant pound movement, since for the most part the CB meeting has already been priced in, but the NFP's tomorrow report will definitely give a signal to action.
And a comment on the Australian dollar. As noted in the note on Tuesday, investors probably will not play against the RBA, which complained to the revaluation of the pound in its press release after the interest rate meeting. Just in time, the weak trade balance has been released, which allowed the Australian currency to continue correction today.
Why Pound is limited to the upsideConsumer spending in the US, a key indicator of inflationary pressures increased in June faster than expected, but could not provide significant boost to the dollar, which renewed slump on Wednesday. Manufacturing sector health also didn't give rise to disappointment, but seems there is nothing to inspire Dollar bulls at the moment . Dollar index moves near the level of 93.00 indicates that further decline may require fresh catalysts, however the main bearish events have already been put into the market. On Wednesday and Friday, the investor will try to "arm" with good ADP and NFP data to raise the dollar from the knees, and for EURUSD it’d be fine to bounce a bit after a long period of growth. Testing of the level 1.1860 today indicates that the market was looking for a good entry for short positions, so those who have not yet joined the "global rally euro" trade, it is reasonable to jump in only next week, after the market plays out NFP.
The UK construction sector continues to receive a blow after the blow, experiencing stagnation in the real estate market. The index of activity in the sector went worse than forecasts, but the secondary negative will probably remain unnoticed, as the focus is on the decision of the British Central Bank on Thursday. Inflation, taking a pause in June, allows officials to maintain a preventive stimulus, because what difficulties for the economy conceals Brexit are still unclear and in Mark Carney's opinion it is better to serve the “dish" slightly overheated than cold. The pound, of course, climbs higher, so that on soft comments it's good to break down. The only fundamental rationale for a strong pound is strong exports, but here one must also remember that it was paradoxically dependent on a weak currency.
Oil prices remain stable before the release of EIA data, the news background remains relatively favorable after the meeting of OPEC, data on US stocks still do not bring a strong negative. Gold prices fell by half a percentage point, the first alarm bell that NFP data could shift the balance in favor of hawkish rhetoric at the next Fed meeting.
EURGBP - BOE might be the catalyst for thisThis week the top 3 currencies to focus on will be the AUD, GBP and USD.
Looking at EURGBP, price has reached the minimum expected area for an expanded flat structure, forming the X structure of a higher degree. Coupled with the RSI divergence and crawl move of the price development, we are in anticipation that a down move is coming soon.
For this, we will be patient and potentially capitalise this trade during Thursday's BOE Rate Statement.
*Make sure you have a proper trading plan to engage the market.
GBPJPY - Short term sell before another buyWhile my medium to long term perspective on GBPJPY remains bullish, I am expecting a short term downside before the buyers come back to push price higher.
This gives me a short term sell opportunity this week -
1) Price is forming a diagonal structure, a reversal pattern;
2) We are seeing a RSI divergence, showing a lack of strength and momentum to push price higher; and
3) Price has reach a 200% fibonacci extension, completing the minimum criteria for wave 3, giving me an expectation that we might be seeing a wave 4 correction soon.
However, taking reference from USDJPY, we might still see price continue to inch higher first before the fall / correction comes.
Keeping a close watch for a potential sell setup this week.
P.S. USDJPY, EURJPY and GBPJPY are all presenting similar setups.
**Take reference from USDJPY as it will 'lead' the others :)
GBPUSD - Don't Rush Into ItAfter a sell off in the UK Pound from the election last week, we saw a hawkish BOE this week. Well... another flip flop in the market that might have left traders confused.
Here's my perspective on GBPUSD - I believe we still have more down side for this pair, perhaps towards the 1.2510 area.
Technical analysis wise -
1) We have a bearish impulse formed, and price seems to be in a correction now;
2) US Dollar Index (DXY) as shared earlier this week was previously in a reversal area, and bounced off strongly -
Fundamental analysis wise -
1) The FED is hawkish and potential rate hike is still very much on the table;
2) The BOE is looking to push for a rate hike, but the current rise in inflation is very much due to the short term depreciation of the Pound - fundamentally and economic wise, not as strong a case as compared to the US.
**However, the downside risk on this still hinges on Trump and Yellen. There are still uncertainties in the US economy and political scene.
Taking into account all these, I believe there is still some small upside potential for GBPUSD to move, perhaps towards 1.2870 area, to complete the correction before we might see another drop in GBPUSD.
Again, I would like to emphasise that we are not saying it's gonna fall for sure, but just a higher probability of it falling then rising impulsively - at least from what we are seeing now.
GBPJPY SHORTBASED ON MY ANALYSIS WE COULD PUT THE PO SELL LIMIT AROUND THE RED HIGHLIGHTED FIBO AREA IN BETWEEN 61.8% - 50% WOULD MAKE A GOOD TRADE SETUP.
THEN THE FIBO LEVEL RANGE IS ON THE SAME LINE AS THE TREND LINE WHICH IS PARALLEL TO THE PREVIOUS LOWER HIGH.
BUT WATCH OUT FOR THE BREAKOUT ON THE TRENDLINE , THE NEWS BOE ON "Average Earnings Index 3m/y "
MIGHT HAVE BIG IMPACT ON THE POUND STERLING.
Pound (GBPUSD) May 2017 OverviewThe GBP was heavily influenced by Theresa May’s announcement of a British snap election in June. The aim of the election is to strengthen May’s hand ahead of the “Brexit” negotiation, but the latest polls show that her party’s advantage over the Labour opposition is shrinking.
The market could be disappointed if there is no much change in UK’s position regarding a softer “Brexit” deal, which is likely to happen.
Despite longer term valuation models like the purchasing power parity (PPP) suggest that the British pound is currently undervalued by some 700 pips, Sterling could depreciate even further in the aftermath of the UK snap election.
We are expecting the Pound to move lower towards 1.25 area.
EURUSD: Long term outlookThe downtrend in the Euro is in danger here. If EURUSD stalls, or rallies higher, there's a chance that it breaks the 2-month timeframe downtrend mode resistance, igniting a fierce rally, after absorbing all overhead supply.
I deem it as a lower probability event, but a very significant one, if we do indeed make the downtrend fail. I think we can see a huge rally. This is a very crowded trade, so I'll focus on attemtpting to catch the dollar fall, while still being long good value US equities.
If by the end of June, we don't hit 0,98898, we could anticipate price breaking higher in time. The minimum required time is signaled on chart.
Good luck,
Ivan Labrie.
GBPUSD SHORT - following improvement in US Jobless ClaimsTechnical: On the 4 hour A FX:GBPUSD chart, a widespread bearish candled formed. This was followed by a second, much wider spread candle, both of which were validated by increasing volume.
Fundamental: Initial jobless claims were released in the US at 10:30UTC+10 with a result of 236K down from 238K in April and better than forecasted 245K. All in all a positive result. In the UK, BOE held rates steady today, lowering 2017 growth forecasts.
Relational: US Bond yields up across the board suggesting a flow into FX and equities.
BOE Interest Rate Hike Sooner Rather Than LaterThe BOE’s interest rate decision scheduled for May 11 will be the main event risk on the UK economic calendar. Based on the market consensus the BOE is expected to keep its policy rate unchanged. However, what is far more important from the pound’s perspective and for the market is how many BOE policymakers might lean towards tightening and vote to raise interest rates.
What is particularly important with this interest rate decision is if there is going to be any material change in the MPC official bank rate vote. The consensus is for the BOE to hold rates unchanged with a 1-8 vote.
Another theme that hasn’t generated a greater traction for GBP/USD exchange rates is the BOE‘s change of tone towards its current monetary policy. This is not an active market theme thus the market didn’t price in the possibility of interest rates going higher. The market works like a discounting mechanism and we’ll start to see in the near future this fundamental theme to drive currency exchange rates as an effort to price in advance the effect of a possible rate hike.
At the end of last month, Michael Sounders one of the BOE policymakers suggested that interest rates can rise as both inflation and growth are on target and even to exceed BOE’s forecasts.
Saunders is the second voice to support higher rates after Kristin Forbes, another MPC member, who already voted in March to raise rates. An effective 7-2 vote can be the catalyst for speculation that interest rates will finally go up. This seems the right move because historically speaking the BOE has always followed the FED footsteps when it comes to the monetary policy.
US vs. UK Interest Rates
The inflation rate has reached levels not seen since September 2013 after jumping to 2.3% last month (see chart below) above BOE target. Despite the UK GDP growth slowdown to 0.3% in the first quarter, the growth forecast for the UK economy remains positive and sooner rather than later BOE will be forced to change its rate policy.
It will be difficult for GBP/USD to sustain any move above 1.3000 big psychological number without a solid fundamental backdrop.
Central banks at the end of the day they do fundamentally drive what is happening in the currency. With the general election coming up in the UK the importance of the BOE has been slightly sidelined. The elections had implications what the BOE will do, but it’s all about relative action from the central bank’s perspective. There is less political uncertainty now than it was before and after the Brexit event. The conservative party is headed for a decent victory in the general elections so there is a good case to be made for speculators to shift their focus towards the interest rate theme.
The heightened uncertainty over EU’s economic and political landscape can also be the driver for more UK capital inflow.
Based on the Wave Analysis , we are expecting some selling pressure to push the GBPUSD lower. A bearish divergence has been forming with a confluence of a 123.6% Fibonacci ratio.
A bearish break below 1.2825 can potentially see more selling momentum for the GBPUSD, pushing it lower towards 1.2486 area.
Dragon XD Setup and outlook for GBPAUDGBPAUD looks to consolidate in between 1.662xx and 1.670xx until the start of the European session
Dragon setup will give me a indication of market direction but I wont be using it as an entry until further confirmation. If GBP breaks the major trend line I will be looking to go long after further analysis but if it breaks the hourly resistance line I will be looking to short this pair.
I expect the bears are looking to complete another Brexit wave as the Pound continues its downtrend into a tighter zone.
GBP is pushing further into overbought conditions and is now at resistance of a Brexit dynamic trend line dating back 2016.
High market volatility for this pair is expected as BOE news release (4AM EST) will push market markets to either reverse or breakout on this pair.
AUD movements will be under the influence by Asian Data releases in the past 24/7 and Employment and Unemployment data releases.
UK's inflation rates and CPI data has push the pound to surpass expectations against this bearish bias of the economical docket.
Quite a bit of uncertainty for this pair this week but I will be target opportunities on both side of the fence. I will update this idea with a setup
Anything Can Happen . XRP Ripple with the BanksAnything Can Happen when daytrading with the Banks. Now that a simple Google Search can let you know that JP Morgan is working with Ethereum, so too one discovers Ripple has heard public support from the Bank of England, Banks in Japan, Dubai and Europe. I'm looking for a Bullish year for Ripple with lots of Price Action similar to Ethereum. We can start looking at cryptos like the dollar bills in our pocket. Bitcoin is the big shiny piece of gold, home base. Litecoin is our silver. Dash may be the $100. Ethereum $50. And we shall see where Ripple positions itself to be. If the Big 10 Coins look steady in the fall, look for STEEM, BURST, GOLOS, DOGE to join the contenders for the USD.
GBPJPY: If it breaks the weekly mode, it can soarI'm long $GBPJPY, as part of my FX portfolio, I think we might see an increase in FDI in Great Britain, after the Brexit vote. The Yen lets foreign investors acquire free money to invest in US and UK assets. The chart is interesting here, so it's probably a good pair to trade on the long side.
The spread in the UK stock market compared to the European one is interesting as well.
I like the potential short squeeze in the Pound to further boost this trade once commercial shorts unwind.
Good luck,
Ivan Labrie.
GBPUSD: Intraday trend analysisGBPUSD appears to have an 8h timeframe trend here. There's risk of this becoming a 'Brexit flash crash #2' situation, considering how the intraday trend time and price target imply a potential turning point when the news come out. My reccomendation is, either to stand aside. I think the market will frustrate the most people, and not start a big trend, neither up or down, simply, staying in a larger triangle/sideways pattern consolidation.
If the market is range bound, fading the range extremes will prove to be profitable. I have my doubts about the dollar, since it appears to have a major topping pattern, but I reccommend caution here, perhaps it's best to trade after the news effects are known, so it might be feasible to trade technical short term trends, both up and down in FX, for a good while. If this indeed breaks up, then we could see a trend gain traction in the long term, which would be beneficial for emerging markets, and also give us more interesting trading opportunities.
Let's wait and see.
Cheers,
Ivan Labrie.
SPX: Breakdown of the downtrend, and longer term signalsSPX is getting extremely interesting, now that VIX has spiked for more than 5 points on the current market decline. I'm monitoring the decline to catch the exact bottom in the market, which I think can end up matching the bottom in oil, and the energy sector, and a great chance to add to my EEM longs too, and acquire more latin american stocks.
I updated my time at mode analysis for SPX in the yearly timeframe, and there's a target at 2987usd, so, we might end up seeing that after the correction bottoms.
Best of luck,
Ivan Labrie.
GBPUSD: It should hold this level, else it's deadThe Pound reached a critical support level. If we see the market hold here, it'll go back to the top of the range, or it could even start an uptrend in the weekly or monthly.
I'd reccomend risking 1-3 average ranges down from the low if going long. I already bought a bit lower before publishing, sorry for that. I bought at 1.2222, but it's still good around here.
Good luck!
Ivan Labrie.
