Sive Morten
Special Consultant to the FPA
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Fundamentals
Today, mates, we again take a look at GBP as it needs more of our attention than gold market. On Gold it is only one question - is current upside action continuation of long-term weekly trend or not yet. The reason to ask this question is Yearly Pivot at 1269, which has been tested last week. Since we have long-term bull trend on weekly chart and events of recent few weeks on daily is just a retracement, we need to answer this question.
But, to answer market needs time and we need to see how market will response on resistance areas.
On GBP situation stands interesting. If you take a look at recent price action, say, US GDP release, you'll see that GBP shows most weak reaction among other currencies and gold.
Reuters agency has released excellent article where it describes major topics that we also call for. There they point five major things that are becoming a surprise for markets, but almost all of them we were talking about.
The dollar has zipped to near two-year highs, leaving many scratching their heads. To many, it’s down to signs the U.S. economy is chugging ahead while the rest of the world loses steam. After all, Wall Street is busily scaling new peaks day after day.
Now U.S. data need to keep surprising on the upside or even just meet expectations. The International Monetary Fund sees U.S. growth at 2.3 percent this year. For Germany, the forecast is 0.8 percent. The U.S. economy’s rude health has given rise to speculation the Fed might resume raising interest rates. Unlikely. But as other countries — Canada, Sweden and Australia are the latest — hint at more policy easing, there seems to be one way the dollar can go. Up.
Wall Street is near record highs and recession worries are receding, so as we mentioned above, investors might wonder if the Federal Reserve will start raising rates again.
Such a pivot is unlikely after the Fed killed off rate-rise expectations at its March meeting. And the latest Reuters poll all but puts to bed any risk of rates will go up this economic cycle, given inflation remains below the Fed’s alarm threshold and unemployment is the lowest in generations.
Before the March rate-pause announcement, a preponderance of economists penciled in one or more increases this year. But that has flipped. A majority of those surveyed April 22-24 see no further tightening through December and more are leaning toward a cut by the end of next year.
Indeed, interest rate futures imply Fed Funds will be below the current 2.25-2.50 percent target range by this December.
Recent positive consumer spending and exports data have eased market concerns of a sharp economic slowdown. But inflation probably needs to run hot for a long period to panic policymakers off their wait-and-see course.
Yesterday we put our view on this subject and we think that unexpected rate change this year by Fed reserve could one of the most powerful driving factors as market absolutely is not ready for this step. Indeed, as we've estimated yesterday the only problem is inflation. It is not low, it is average, but it is not growing. But there are some signals exist that situation could change in second half of 2019. Thus, we're not totally agree with Reuters view on this subject.
Sterling has gone into the doldrums amid the Brexit delay and unproductive talks between the UK government and the opposition Labour party on a EU withdrawal deal. The resurgent dollar, meanwhile, has taken 2 percent off the pound in April. It is unlikely the Bank of England will be able to rouse it at its May 2 meeting.
Despite robust retail and jobs data of late, the economic picture is gloomy - 2019 growth is likely to be around 1.2 percent, the weakest since 2009, investment is down and Governor Mark Carney says business uncertainty is “through the roof”.
Indeed, expectations for an interest rate increase have been whittled down; Reuters polls forecast rates will not move until early 2020, a calendar quarter later than was forecast a month ago. The hunt for a new governor to replace Carney in October adds more uncertainty to the mix.
The recent run of UK data has fueled hopes of economic rebound. That’s put net hedge fund positions in the pound into positive territory for the first time in nearly a year. The Old Lady of Threadneedle Street might temper some of that optimism.
Yes, it was last week, but this week net position turns to negative again, although not very significant:
Source: cftc.gov
Charting by Investing.com
In general speculators increased their net long U.S. dollar bets in the latest week to the highest
level since December 2015, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.
The value of the net long dollar position was $37.21 billion in the week ended April 23, compared with $34.55 billion the previous week. U.S. net long dollars rose for a fourth straight week.
"The greenback has clearly begun to make headway across the board in the past week or so, particularly since China’s stock market has faltered," said Oliver Jones, market economist, at Capital Economics in London.
"We expect that to continue, as tentative signs that growth in the global economy is stabilizing fail to translate into the recovery that investors are hoping for," he added.
Speaking on this week action, the British pound was headed for its biggest weekly drop in a month on Friday, dragged down by growing concern about stagnant Brexit talks.
A broad dollar rebound this month — it has gained against all its major rivals — has also undercut the appeal of the pound before a Bank of England policy meeting next week where policymakers are expected to leave interest rates unchanged.
“The implied probability of Brexit happening by end-June has changed little subsequent to suggestions that PM May could bring the WA (Withdrawal Agreement) back to the Commons next week,” said RBC’s chief currency strategist Adam Cole.
“Elsewhere, (Boris) Johnson is racing ahead as favourite for next PM as perceived risk of an early election continues to diminish.”
Sterling - stuck around $1.29 - has struggled this week as lawmakers returned from an Easter recess with little sign of progress in Prime Minister Theresa May’s efforts to convince lawmakers to back her Brexit deal.
In fact, Prime Minister’s Theresa May’s talks with the opposition Labour Party over Brexit had run into the sand and as a firm dollar encouraged sterling selling.
Britain’s departure date from the European Union has been pushed back until as late as the end of October. The protracted divorce is hurting the British economy and poor productivity is hindering growth, Goldman Sachs said.
Here is GBP performance since Brexit has been announced.
The dollar, which rose towards a two-year high on an index of major currencies, also weighed on the pound. So did the prospect of a fresh push for Scottish independence.
“Renewed debate about the choice of currency for an independent Scotland will rekindle uncertainty. Sterling risks $1.2800 in the current strong dollar environment,” said Chris Turner, head of foreign exchange strategy at ING.
Differences over Brexit have strained relations with the British government, and Scotland will start preparing for an independence referendum before May 2021, First Minister Nicola Sturgeon said on Wednesday.
Scots rejected independence in a 2014 referendum and support since then has stuck at around 45 percent, opinion polls say.
Fathom consulting adds more fuel into the fire, showing that situation in labour market is not good.
A new perspective on the booming UK labour market
In two words speaking, as a rule labour market performance agrees with capital flows and last employment report was rather position as total employment rate shows high 76.1% level, highest in last 50 years.
But the problem is - the flow of capital is decreased and divergence between flow of staff and flow of capital starts to form that was not seen for long term. Fathom suggests that there are two reasons could be - first is very cheap labour and oversupply, second - Brexit results expectations by business. Whatever reason is, it definitely will hurt wide array of statistics that reflect economy performance, and most valuable is GDP data.
There are at least two reasons why this might have occurred. First, the more widespread use of ‘zero-hours’ contracts, by allowing firms to vary their labour usage at little or no cost, day by day, might have raised the demand for labour relative to capital. Second, Brexit-induced uncertainty might have caused businesses to put major investment decisions on hold, encouraging them to use more labour than might otherwise be the case until that uncertainty is resolved.
As a bottom line, overall sentiment barely has changed this week. It still stands bearish due political uncertainty and deteriorating situation in economy with good performance of major rival - US Dollar.
By our view it makes GBP one of the best currency for short trading. Last week shows big downside swings and very small upside retracement as a reaction on any news against USD.
Technicals
Monthly
We keep our monthly view intact. The major event that has happened last week - drop below Yearly Pivot.
On monthly chart we need to follow the sequence of the swing to understand where we're now. Action down to 1.21 was the CD leg of our major all-time pattern. Once COP extension has been hit, market turned to reasonable retracement and completed harmonic swing. We see that upside harmonic swing to 1.46 area is slower than downside drop.
Now market is going down again. It could mean that CD leg continues and in long-term perspective, OP target could be completed. But this is too long-term perspective for us. We need something closer to use it as real target in day-by-day trading.
Also I wouldn't talk on AB=CD upside action after major COP. COP is minor target and it is quite rare leads to deep retracement in shape of 2 legs.
Overall price action shape lets us to suggest appearing of butterfly pattern, with first target around 1.1335. Another target is YPS1 that stands at 1.2440.
Finally, we have monthly bearish grabber that suggests drop below 1.24 area and supports idea of reaching YPS1 at least.
Weekly
This week stands bearish as downside action continues. On weekly chart we have tighter target as we have AB-CD pattern inside monthly butterfly pattern. Thus, COP target stands around 1.2170 area. It could be the one that market will follow as it stands around YPS1 and previous lows.
The same story here with pivots. Take a look that upward action was stopped by MPR1 and now price dropped below MPP. This price action tells that bearish trend is still intact and we should treat upside action just as retracement, at least by pivot points framework. Now price hits MPS1 and US GDP data triggered minor pullback.
But here is another interesting moment exist. Take a look that overall price action reminds reverse H&S pattern and what has happened with it? Right, it has failed to break the neckline. Besides, last upside effort mostly was erased by the drop. Weekly trend stands bearish. As we mentioned last week, to get official confirmation of H&S failure - we need price drop below shoulders - 1.2650-1.2750 area.
Daily
On daily chart trend stands bearish, price is not at oversold. In fact market even has shown better downside performance than we've expected by our trading plan as it has hit not only 4H OP target, as we've suggested, but it has hit deeper OP of daily AB-CD. Now, price stands at OP and MPS1. Taking in consideration mixed GDP data and few days till FOMC meeting, GBP as other markets could turn to technical retracement.
As we have important resistance area that has been broken recently - 1.30 K-area and important natural support line - this is most probable upside target, or at least the level that could become a ceil as price could re-test previous lows.
Next downside target mostly stands the same - this is another OP that agrees with major 5/8 support @1.2780.
Intraday
Here, on 4H chart you could find wide combination of levels, guys, but we use this one. On 1H chart you'll see why I've chosen them. Also this levels agrees with pivots, that provides additional resistance. Besides, we know that WPR1 works as signal line of short-term bearish trend validity. K-resistance here coincides with former K-support area on daily chart which has been broken and could be re-tested as we've said above:
On hourly chart, the upside action approximately could take the following shape. First, as we have minor AB-CD pattern in progress, we expect reaching of first Fib resistance Agreement @1.2960 area as we have XOP here as well. But this could be only the half way up.
Second step, if upside action continues more, we will keep an eye on possible reverse H&S pattern. Its target agrees with our second and major level - K-resistance at 1.3020 area:
Conclusion:
Analysis of fundamental factors this week confirms existing of bearish sentiment and we keep our long-term bearish view on GBP. Last week GBP reaction on any USD-negative moments was depressed, and weakest among other currencies, which makes GBP good choice for trading on USD strength.
In short-term perspective, GBP probably turns to upside bounce as other assets across the board. Market will be quiet until Fed reaction 1st of May on improving US data in IQ
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
Today, mates, we again take a look at GBP as it needs more of our attention than gold market. On Gold it is only one question - is current upside action continuation of long-term weekly trend or not yet. The reason to ask this question is Yearly Pivot at 1269, which has been tested last week. Since we have long-term bull trend on weekly chart and events of recent few weeks on daily is just a retracement, we need to answer this question.
But, to answer market needs time and we need to see how market will response on resistance areas.
On GBP situation stands interesting. If you take a look at recent price action, say, US GDP release, you'll see that GBP shows most weak reaction among other currencies and gold.
Reuters agency has released excellent article where it describes major topics that we also call for. There they point five major things that are becoming a surprise for markets, but almost all of them we were talking about.
The dollar has zipped to near two-year highs, leaving many scratching their heads. To many, it’s down to signs the U.S. economy is chugging ahead while the rest of the world loses steam. After all, Wall Street is busily scaling new peaks day after day.
Now U.S. data need to keep surprising on the upside or even just meet expectations. The International Monetary Fund sees U.S. growth at 2.3 percent this year. For Germany, the forecast is 0.8 percent. The U.S. economy’s rude health has given rise to speculation the Fed might resume raising interest rates. Unlikely. But as other countries — Canada, Sweden and Australia are the latest — hint at more policy easing, there seems to be one way the dollar can go. Up.
Wall Street is near record highs and recession worries are receding, so as we mentioned above, investors might wonder if the Federal Reserve will start raising rates again.
Such a pivot is unlikely after the Fed killed off rate-rise expectations at its March meeting. And the latest Reuters poll all but puts to bed any risk of rates will go up this economic cycle, given inflation remains below the Fed’s alarm threshold and unemployment is the lowest in generations.
Before the March rate-pause announcement, a preponderance of economists penciled in one or more increases this year. But that has flipped. A majority of those surveyed April 22-24 see no further tightening through December and more are leaning toward a cut by the end of next year.
Indeed, interest rate futures imply Fed Funds will be below the current 2.25-2.50 percent target range by this December.
Recent positive consumer spending and exports data have eased market concerns of a sharp economic slowdown. But inflation probably needs to run hot for a long period to panic policymakers off their wait-and-see course.
Yesterday we put our view on this subject and we think that unexpected rate change this year by Fed reserve could one of the most powerful driving factors as market absolutely is not ready for this step. Indeed, as we've estimated yesterday the only problem is inflation. It is not low, it is average, but it is not growing. But there are some signals exist that situation could change in second half of 2019. Thus, we're not totally agree with Reuters view on this subject.
Sterling has gone into the doldrums amid the Brexit delay and unproductive talks between the UK government and the opposition Labour party on a EU withdrawal deal. The resurgent dollar, meanwhile, has taken 2 percent off the pound in April. It is unlikely the Bank of England will be able to rouse it at its May 2 meeting.
Despite robust retail and jobs data of late, the economic picture is gloomy - 2019 growth is likely to be around 1.2 percent, the weakest since 2009, investment is down and Governor Mark Carney says business uncertainty is “through the roof”.
Indeed, expectations for an interest rate increase have been whittled down; Reuters polls forecast rates will not move until early 2020, a calendar quarter later than was forecast a month ago. The hunt for a new governor to replace Carney in October adds more uncertainty to the mix.
The recent run of UK data has fueled hopes of economic rebound. That’s put net hedge fund positions in the pound into positive territory for the first time in nearly a year. The Old Lady of Threadneedle Street might temper some of that optimism.
Yes, it was last week, but this week net position turns to negative again, although not very significant:
Source: cftc.gov
Charting by Investing.com
In general speculators increased their net long U.S. dollar bets in the latest week to the highest
level since December 2015, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.
The value of the net long dollar position was $37.21 billion in the week ended April 23, compared with $34.55 billion the previous week. U.S. net long dollars rose for a fourth straight week.
"The greenback has clearly begun to make headway across the board in the past week or so, particularly since China’s stock market has faltered," said Oliver Jones, market economist, at Capital Economics in London.
"We expect that to continue, as tentative signs that growth in the global economy is stabilizing fail to translate into the recovery that investors are hoping for," he added.
Speaking on this week action, the British pound was headed for its biggest weekly drop in a month on Friday, dragged down by growing concern about stagnant Brexit talks.
A broad dollar rebound this month — it has gained against all its major rivals — has also undercut the appeal of the pound before a Bank of England policy meeting next week where policymakers are expected to leave interest rates unchanged.
“The implied probability of Brexit happening by end-June has changed little subsequent to suggestions that PM May could bring the WA (Withdrawal Agreement) back to the Commons next week,” said RBC’s chief currency strategist Adam Cole.
“Elsewhere, (Boris) Johnson is racing ahead as favourite for next PM as perceived risk of an early election continues to diminish.”
Sterling - stuck around $1.29 - has struggled this week as lawmakers returned from an Easter recess with little sign of progress in Prime Minister Theresa May’s efforts to convince lawmakers to back her Brexit deal.
In fact, Prime Minister’s Theresa May’s talks with the opposition Labour Party over Brexit had run into the sand and as a firm dollar encouraged sterling selling.
Britain’s departure date from the European Union has been pushed back until as late as the end of October. The protracted divorce is hurting the British economy and poor productivity is hindering growth, Goldman Sachs said.
Here is GBP performance since Brexit has been announced.
The dollar, which rose towards a two-year high on an index of major currencies, also weighed on the pound. So did the prospect of a fresh push for Scottish independence.
“Renewed debate about the choice of currency for an independent Scotland will rekindle uncertainty. Sterling risks $1.2800 in the current strong dollar environment,” said Chris Turner, head of foreign exchange strategy at ING.
Differences over Brexit have strained relations with the British government, and Scotland will start preparing for an independence referendum before May 2021, First Minister Nicola Sturgeon said on Wednesday.
Scots rejected independence in a 2014 referendum and support since then has stuck at around 45 percent, opinion polls say.
Fathom consulting adds more fuel into the fire, showing that situation in labour market is not good.
A new perspective on the booming UK labour market
In two words speaking, as a rule labour market performance agrees with capital flows and last employment report was rather position as total employment rate shows high 76.1% level, highest in last 50 years.
But the problem is - the flow of capital is decreased and divergence between flow of staff and flow of capital starts to form that was not seen for long term. Fathom suggests that there are two reasons could be - first is very cheap labour and oversupply, second - Brexit results expectations by business. Whatever reason is, it definitely will hurt wide array of statistics that reflect economy performance, and most valuable is GDP data.
There are at least two reasons why this might have occurred. First, the more widespread use of ‘zero-hours’ contracts, by allowing firms to vary their labour usage at little or no cost, day by day, might have raised the demand for labour relative to capital. Second, Brexit-induced uncertainty might have caused businesses to put major investment decisions on hold, encouraging them to use more labour than might otherwise be the case until that uncertainty is resolved.
As a bottom line, overall sentiment barely has changed this week. It still stands bearish due political uncertainty and deteriorating situation in economy with good performance of major rival - US Dollar.
By our view it makes GBP one of the best currency for short trading. Last week shows big downside swings and very small upside retracement as a reaction on any news against USD.
Technicals
Monthly
We keep our monthly view intact. The major event that has happened last week - drop below Yearly Pivot.
On monthly chart we need to follow the sequence of the swing to understand where we're now. Action down to 1.21 was the CD leg of our major all-time pattern. Once COP extension has been hit, market turned to reasonable retracement and completed harmonic swing. We see that upside harmonic swing to 1.46 area is slower than downside drop.
Now market is going down again. It could mean that CD leg continues and in long-term perspective, OP target could be completed. But this is too long-term perspective for us. We need something closer to use it as real target in day-by-day trading.
Also I wouldn't talk on AB=CD upside action after major COP. COP is minor target and it is quite rare leads to deep retracement in shape of 2 legs.
Overall price action shape lets us to suggest appearing of butterfly pattern, with first target around 1.1335. Another target is YPS1 that stands at 1.2440.
Finally, we have monthly bearish grabber that suggests drop below 1.24 area and supports idea of reaching YPS1 at least.
Weekly
This week stands bearish as downside action continues. On weekly chart we have tighter target as we have AB-CD pattern inside monthly butterfly pattern. Thus, COP target stands around 1.2170 area. It could be the one that market will follow as it stands around YPS1 and previous lows.
The same story here with pivots. Take a look that upward action was stopped by MPR1 and now price dropped below MPP. This price action tells that bearish trend is still intact and we should treat upside action just as retracement, at least by pivot points framework. Now price hits MPS1 and US GDP data triggered minor pullback.
But here is another interesting moment exist. Take a look that overall price action reminds reverse H&S pattern and what has happened with it? Right, it has failed to break the neckline. Besides, last upside effort mostly was erased by the drop. Weekly trend stands bearish. As we mentioned last week, to get official confirmation of H&S failure - we need price drop below shoulders - 1.2650-1.2750 area.
Daily
On daily chart trend stands bearish, price is not at oversold. In fact market even has shown better downside performance than we've expected by our trading plan as it has hit not only 4H OP target, as we've suggested, but it has hit deeper OP of daily AB-CD. Now, price stands at OP and MPS1. Taking in consideration mixed GDP data and few days till FOMC meeting, GBP as other markets could turn to technical retracement.
As we have important resistance area that has been broken recently - 1.30 K-area and important natural support line - this is most probable upside target, or at least the level that could become a ceil as price could re-test previous lows.
Next downside target mostly stands the same - this is another OP that agrees with major 5/8 support @1.2780.
Intraday
Here, on 4H chart you could find wide combination of levels, guys, but we use this one. On 1H chart you'll see why I've chosen them. Also this levels agrees with pivots, that provides additional resistance. Besides, we know that WPR1 works as signal line of short-term bearish trend validity. K-resistance here coincides with former K-support area on daily chart which has been broken and could be re-tested as we've said above:
On hourly chart, the upside action approximately could take the following shape. First, as we have minor AB-CD pattern in progress, we expect reaching of first Fib resistance Agreement @1.2960 area as we have XOP here as well. But this could be only the half way up.
Second step, if upside action continues more, we will keep an eye on possible reverse H&S pattern. Its target agrees with our second and major level - K-resistance at 1.3020 area:
Conclusion:
Analysis of fundamental factors this week confirms existing of bearish sentiment and we keep our long-term bearish view on GBP. Last week GBP reaction on any USD-negative moments was depressed, and weakest among other currencies, which makes GBP good choice for trading on USD strength.
In short-term perspective, GBP probably turns to upside bounce as other assets across the board. Market will be quiet until Fed reaction 1st of May on improving US data in IQ
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
