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Sterling

ridethepig | BOE & FED ComboThis is a quick update to do with pricing in rates, or what's already priced in rate market ... I wont try my best to keep it short and sweet. I have been receiving many PM's and comments around how do we know when the Fed cuts are fully priced in? For example the -50bps that the market forced earlier in the week...everybody knew they were coming, they just didn't know it would be a surprise before the meeting. When it comes to the fundamentals and pricing in rate cuts, the macro is slightly different on each side. The reason it's different is because of timing and placement in the economic cycle. On the UK side, when we walk forward, the further out you go in time, the more relevant Brexit becomes. Why? The market has been incrementally pricing as we've gone along... doing it in small pieces because that's how markets like to move. The market didn't sit at the highs saying well we've got a new fiscal budget coming with tax cuts on the horizon, the taps on full blast and BOE ready to bend the knee, so lets start selling GBP and suddenly GBPUSD was down 300 ticks. Then markets looked at the 1.275x lows and did another forward walk, this time saying there is no point in going lower because of Fed cuts via coronavirus short-circuit, these are not fully priced so lets take another test of the 1.300x highs as there is more money to be made in the slow train !!! The macro traders know this, a BOE intervention is only a matter of when and if they can wait till the meeting. We have the budget next week and a very aggressive Fiscal policy may offset the need to act inbetween although, another they will not appreciate another hammer in UK Equities so eyes there to begin the week. Mostly when talking about whats being priced in, it's on the incremental level. So you will remember the GBP devaluation we are trading via Brexit: This is the future, what the market will try and do is price it all in small increments. The biggest moves, the ones with real volatility will come only sessions before the actual fact of Brexit annihilation. The market is not interested in these small 50 ticks or 75 tick retracement, the further out you go the more relevant the macro becomes. You see here with the PM May resignation: Markets priced in a little before, but you usually don't know enough details until shortly before the fact. Then before the announcement, maybe price moved 100 ticks... then markets expect it to be hawkish ... if that's the case with Boris then it gets priced and if they do not deliver then it will be priced back out. For the technical 🗺 Steel Support 1.241x <=> Strong Support 1.258x <=> Soft Support 1.275x <=> S/R Flip 1.293x <=> Strong Resistance 1.310x <=> Steel Resistance 1.321x It's macro ... the titanic takes a long time to turn ... Good luck all those in GBP and UK assets, here tracking a pullback in GBPUSD via BOE intervention and -50bps front loaded cut. I don't think they will be able to wait till the meeting! Thanks for keeping the support coming with likes, comments and etc!!
Short
by ridethepig
7
EURGBP is sitting on a ledge... with a long way downHey all. Sometimes there are trades which just stand out to you. EURGBP here is one of them. See, there's a big issue currently in Europe. With fiscal stimulus seemingly being coordinated simultaneously with most of the major countries excluding the Eurozone partaking, it seems that this is rather an obvious trade we have here. Now, fiscal stimulus tends to lead to an increase in inflation expectations, which naturally end up leading to central banks reassessing their monetary policy guidance. Now, I actually think that the risk is no longer low or negative rates, but a sharp reversion to the upside in global interest rates, and this could certainly stem from fiscal stimulus, IF it is GDP effective. The problem with this, however, is that since rates have been low for so long, the world has gorged on debt, and a higher base rate will likely lead to higher refinancing costs of this debt. For the Eurozone, however, there is mixed feelings towards this. The block doesn't have fiscal union - that means that each individual country decides what to do with its own spending... which is at odds with having a monetary union. So if Germany start to spend for example, the monetary policy could end up working against the German government's aims, or vice versa, the ECB's aims. This creates ineffectual policy eventually - but it's created ineffectual policy anyway, and that can be seen through the movement of labour from eastern European states to central and western European states. A big issue that may start cropping up though, is that the German government is in a bit of a crisis, and may be forced to start spending, reducing the surplus that they've held for a long time - but is this likely to happen? My guess is not - and whilst the UK releases its budget in Q2, I think we'll see a large deterioration in the value of the Euro relative to the pound. Because of this, selling EURGBP is a very valid trade, and what's more is that you earn swap for holding overnight on this. Some technical levels - I'd expect the market to trade a bit higher this week, but with Eurozone and German data to the back end of the week, I'd expect the pair to trade into 0.8380 - 0.8400 and then begin pushing back to the downside with a key break of 0.8300 leading to an increase in position size. Managing the trade will simply be looking at adding and adjusting a trailing stoploss at the prior day's average true range + 10 ticks. We will increase/decrease position size with newsflow - most importantly, taking a cumulative view of soft data which will price in hard data.
Short
by FinkPro
1
GBP/USD Eyes 1.34 HandleFundamentally : Sterling refuses to push much lower, despite growing talk of a 0.25% interest rate at the end of the month. Turnover is limited with the US market closed in observance of Martin Luther King Day but any selling pressure is met by buyers and the downside for now looks limited. Technically Key level of 1.30 Psychological zone seems to be keeping the Pound above Bearish territory. Price Action suggests along with fundamental backing that Sterling will continue seeing a Bullish run amid post General Election Business sentiment. Break and close Below sees Bears return with next Bearish Target of previous Support at 1.28 - Although unlikely price may be pushed back into Demand zone of 1.22. This unlikely but still possible - only with unexpected high impact news driving a reaction validation towards this extreme low. For now, Bullish bias remains as Sterling creeps toward the upside.
Long
by HuracanFX
ridethepig | GBP Market Commentary 2020.02.11A timely update to the FX strategy for GBP with particular focus on Cable. On the UK side, we have loud messages from Europe around the difficulty for both sides to reach an agreement by year-end. Although typical in a game of high-stakes chess, this is a heavy weight on Sterling. On the US side, a solid round of data prints last week from wages to non-agricultural employment. The FED remains dovish and in cutting mode, in normal circumstances cuts would be difficult to justify but with Trump in full control market expectations do not favour USD walking forward. On the technicals the map is crystal clear until we enter into the Brexit impact leg: Strong Support 1.276x <=> Soft Support 1.290x <=> Mid Point 1.328x <=> Soft Resistance 1.38xx <=> Strong Resistance 1.43xx On the positioning side, Pound longs were mostly built by speculators in the back-end of 2019 and these began to unwind as we headed into the official finish line in Jan 2020. This is leaving the flows exposed to negative headlines although you can argue the case for further upside as long as strong economic prints continue. The Pound is relatively cheap in this environment, I suspect the main impact leg from Brexit will not kick-in till October 2020 so we have plenty of time to continue working both side in the next 6 months. Expecting a mild recovery to come in the months ahead which will aid in offshore ownership of UK assets, the desire is there to continue the recovery and as long as this remains the case the breakdown will be difficult. Look to add GBP exposure on dips while we are at the bottom of the short-term and medium term range. A breakdown will be a game changer and will imply BOE are moving in August. A round of G10 FX charts and strategy updates coming over the sessions today... Don't forget to keep the likes and comments rolling guys!
Long
by ridethepig
1