Holiday Gifting for GBP Bears

• faithmight
• December 13th, 2009

Uh, I don’t know about that yet. Price still sits above 1.6000 but the downward channel on the daily chart is pointing price in the right direction. Now the sentiment has been bearish sterling for some time now on StockTwits and Twitter. But the risk trade prevented the USD from capitalizing on the contrast between both the US and UK economies and monetary policies as the GBP was a beneficiary of increased risk appetite in the markets.

The release of a very optimistic jobs report this month rallied the USD hard across the board bringing the $GBPUSD from the 1.6500 level to complete the quarter to 1.6250. But since then, trading has been very choppy, as price has pivoted around the 1.6250 level. And for good reason. Despite the positive employment and retail sales data, the market has been unwilling to take the USD higher because many are unsure if these numbers are an actual start of a positive trend in the US economy or are simply one-off numbers seduced by the holiday season – recession or no recession.

Now the GBP should in fact weaken given its fundamentals: most recently, weak manufacturing sector, still no economic growth from the United Kingdom, continued ultra-accommodative monetary policy by the Bank of England, and now resurfacing concerns of the British sovereign debt. But the weakening of the GBP strengthens the USD and the market is just not yet convinced by the US fundamentals either.

Back to the downward channel on the above daily chart that has been building since November 16, 2009. Now that price has reached 1.6250 and has remained in this channel, it is expected that price continue down to 1.6000. But on its way down to that level, price must contend with hourly support at 1.6165 (last Wednesday’s low) and then ST support at 1.6120 level. There we find a near double top with a high on September 30, 2009 at 1.6124 and a high on October 8, 2009 at 1.6118. This former resistance-turned-support may be a formidable level as price slides to 1.6000.

Now some red flags did form from Friday’s price action. Though prices have dropped since the market open some hours ago, we cannot ignore that price did breach the 50% Fibonacci retracement level of Friday’s move on the hourly chart at 1.6266 with a high of 1.6268. And despite the strong retails sales last Friday, cable was unable to break to new lows below Wednesday’s low of 1.6165. But price did close below 1.6250. Plus, price action can invalidate this development as long as it stays below 1.6340 level where price failed 2 times last week. Even better if price stays below 1.6250 and breaks support at 1.6165. If that should happen, the bears should be very confident that price continues down towards 1.6000.

This week’s economic calendar could be important because we will see direct contrasts in certain sectors between the US and the UK. This week, UK retail sales and employment numbers will be released and will be compared to those that have already been released from the US. US industrial production and empire manufacturing will be released this week too and will also be compared to those out of the UK. Then we get UK CPI numbers, US CPI, UK CBI, and housing numbers from both countries. And, of course, the FOMC is the spotlight event of the week. Quite a heavy economic calendar that is sure to produce some volatile moves in the forex market.

I, like many traders, am a cable bear and expect to see further strengthening of the USD versus sterling. As always, trade what you see, not what I think.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: $USDX, dollar, GBPUSD, sterling

blog comments powered by Disqus