Sive Morten
Special Consultant to the FPA
- Messages
- 18,690
Today, guys, as I promised we will take a look at GBP, because I think that here we have rather interesting setup on daily chart. Fundamental background we've discussed yesterday in EUR thread. In relation of GBP, we have just one reliitvely new subject - possible Brexit reversal. At same time, just last week Court has rejected legal bit for Brexit cancelling.So all this noise around Brexit could bring a lot of volatility on GBP. Besides, Fathom still think that UK economy will stand under pressure, and despite possible another rate increase from BoE - this will be mostly single case but not new cycle. According to Fathom consulting view - BoE overestimate UK economy situation.
"we maintain our belief that there is a greater-then-evens chance that the UK will suffer a mild technical recession this year. Although, as we have commented in the past, trying to predict a recession with any certainty is a “mug’s game”. But if we are right, economic slack in the UK economy will be greater than the Bank of England set out in its November 2017 Inflation Report and further rate hikes will be off the cards."
COT Report
CFTC data mostly shows bearish sentiment, but it is more typical for retracement action rather than for trend. As you can see net long position is dropping together with open interest. It means that recent action stands mostly due long covering rather than due new short positions.
Still, GBP quite rare had net long position in the past. This one is not extreme one, but still stands rather close to all-time highs. Mostly it corresponds to average maximum value of net long position. From that standpoint we also could suggest that GBP still a bit overextended up.
Technicals
Monthly
GBP stands technically approximately in the same situation as EUR. Both has shown strong upside action in January, both at monthly resistance and completed upside harmonic swings.
Long term chart barely has changed as last 4-6 weeks. As on EUR - February mostly stands inside to January.
Although long-term view for GBP is not really positive and, as we read above, in Fathom's release, they expect some recession in 2018 and no rate increase from BoE.
Trend is bullish here and there are some moments that we should take care on. First is uncompleted very long-term AB-CD target around 1.1650 area. Market has turned up just 350 pips above it, which is small distance for monthly scale. When such turning happens, this creates friable background of upside action. In fact, you never know where precisely market could stepped out and start dropping again, tending to uncompleted target. The same situation we have here. The nature of price action definitely shows that this is not a trend - too many overlapping candles, long shadows and no thrusting action.
Market right now stands near overbought and inside resistance cluster of Fib level, YPR1 and natural area of monthly lows of 2007-2009 around 1.42 area.
In our previous analysis we've suggested that GBP could turn down somewhere around 1.39-1.41 and now we're just watching for response. Definitely market feels some barrier around it.
Finally, reaching of yearly Pivot resistance 1 will be a moment of particular interest. Pivots are not just support or resistance. They are sentiment indicators. And if GBP will fail to break it - this could become clear signal of coming downside reversal.
Weekly
Here trend stands bullish and definitely it is too early to talk on breaking major upside tendency. Actually this could happen only if price will drop through 1.35 K-area and break upside channel. Previous three weeks was normal response on resistance of upper border of the channel, monthly resistance and weekly OB area. Market has formed approximately the same formation as on EUR - a kind of evening star pattern.
But what is really important - take a look at backward action. It is weaker. While on EUR price has created new tops - here it was 5/8 retracement. And now market stands at very important point. Further downside drop could lead to rising of bearish domination. Besides, picture that we have on daily chart is very interesting.
Daily
As cable has shown shyer reaction compares to EUR - take a look how overall combination looks. We have uncompleted AB-CD XOP target, and last week we've mentioned this moment couple times, as market was standing between OP and XOP.
But in result of turmoil upside action has happened prior XOP has been completed. Meantime, GBP has climbed just to major 5/8 Resistance and keeps valid our AB-CD pattern.
Now, right at this point we've got bearish stop grabber that has target around 1.3740 lows. This analysis makes me think that GBP could complete XOP...
Intraday
How we could take a position on this setup. Obviously we're interested just in grabber's candle range. Any action above it will reduce attractiveness of whole setup. Grabber is very important point of this combination.
B&B trade already has happened here, so we do not have the same issue as on EUR. To be honest guys, when I saw this drop on Friday, I thought about H&S pattern. Currently I'm not sure that we will get as deep retracement as 1.41, but still some upside bounce should happen. Price right now stands at Fib level and WPP. Reversal swing has been formed - so some deep retracement is a common thing in situation of this kind.
So, keep an eye on intraday charts - try to catch something like AB-CD, maybe "222"Sell or something of that sort. We need some pattern that will point on the level where is better to go short. Keep an eye on major Fib resistances. In normal conditions I would suggest deep retracement, and may be even H&S indeed. But, something tells me that this is not simple downside reversal. That's why some more aggressive action could happen. Still our major picture is daily one. If we will see too strong upside action on Monday and/or price will break above 1.41 - better to not go short at this conditions. This will be warning factor.
Conclusion:
On coming week we're mostly interested in setup that has been formed on daily chart as it has solid downside potential. Now we will be watching for chance to short but beware of strong upside action and breaking of 1.41 level.
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.
"we maintain our belief that there is a greater-then-evens chance that the UK will suffer a mild technical recession this year. Although, as we have commented in the past, trying to predict a recession with any certainty is a “mug’s game”. But if we are right, economic slack in the UK economy will be greater than the Bank of England set out in its November 2017 Inflation Report and further rate hikes will be off the cards."
COT Report
CFTC data mostly shows bearish sentiment, but it is more typical for retracement action rather than for trend. As you can see net long position is dropping together with open interest. It means that recent action stands mostly due long covering rather than due new short positions.
Still, GBP quite rare had net long position in the past. This one is not extreme one, but still stands rather close to all-time highs. Mostly it corresponds to average maximum value of net long position. From that standpoint we also could suggest that GBP still a bit overextended up.
Technicals
Monthly
GBP stands technically approximately in the same situation as EUR. Both has shown strong upside action in January, both at monthly resistance and completed upside harmonic swings.
Long term chart barely has changed as last 4-6 weeks. As on EUR - February mostly stands inside to January.
Although long-term view for GBP is not really positive and, as we read above, in Fathom's release, they expect some recession in 2018 and no rate increase from BoE.
Trend is bullish here and there are some moments that we should take care on. First is uncompleted very long-term AB-CD target around 1.1650 area. Market has turned up just 350 pips above it, which is small distance for monthly scale. When such turning happens, this creates friable background of upside action. In fact, you never know where precisely market could stepped out and start dropping again, tending to uncompleted target. The same situation we have here. The nature of price action definitely shows that this is not a trend - too many overlapping candles, long shadows and no thrusting action.
Market right now stands near overbought and inside resistance cluster of Fib level, YPR1 and natural area of monthly lows of 2007-2009 around 1.42 area.
In our previous analysis we've suggested that GBP could turn down somewhere around 1.39-1.41 and now we're just watching for response. Definitely market feels some barrier around it.
Finally, reaching of yearly Pivot resistance 1 will be a moment of particular interest. Pivots are not just support or resistance. They are sentiment indicators. And if GBP will fail to break it - this could become clear signal of coming downside reversal.
Weekly
Here trend stands bullish and definitely it is too early to talk on breaking major upside tendency. Actually this could happen only if price will drop through 1.35 K-area and break upside channel. Previous three weeks was normal response on resistance of upper border of the channel, monthly resistance and weekly OB area. Market has formed approximately the same formation as on EUR - a kind of evening star pattern.
But what is really important - take a look at backward action. It is weaker. While on EUR price has created new tops - here it was 5/8 retracement. And now market stands at very important point. Further downside drop could lead to rising of bearish domination. Besides, picture that we have on daily chart is very interesting.
Daily
As cable has shown shyer reaction compares to EUR - take a look how overall combination looks. We have uncompleted AB-CD XOP target, and last week we've mentioned this moment couple times, as market was standing between OP and XOP.
But in result of turmoil upside action has happened prior XOP has been completed. Meantime, GBP has climbed just to major 5/8 Resistance and keeps valid our AB-CD pattern.
Now, right at this point we've got bearish stop grabber that has target around 1.3740 lows. This analysis makes me think that GBP could complete XOP...
Intraday
How we could take a position on this setup. Obviously we're interested just in grabber's candle range. Any action above it will reduce attractiveness of whole setup. Grabber is very important point of this combination.
B&B trade already has happened here, so we do not have the same issue as on EUR. To be honest guys, when I saw this drop on Friday, I thought about H&S pattern. Currently I'm not sure that we will get as deep retracement as 1.41, but still some upside bounce should happen. Price right now stands at Fib level and WPP. Reversal swing has been formed - so some deep retracement is a common thing in situation of this kind.
So, keep an eye on intraday charts - try to catch something like AB-CD, maybe "222"Sell or something of that sort. We need some pattern that will point on the level where is better to go short. Keep an eye on major Fib resistances. In normal conditions I would suggest deep retracement, and may be even H&S indeed. But, something tells me that this is not simple downside reversal. That's why some more aggressive action could happen. Still our major picture is daily one. If we will see too strong upside action on Monday and/or price will break above 1.41 - better to not go short at this conditions. This will be warning factor.
Conclusion:
On coming week we're mostly interested in setup that has been formed on daily chart as it has solid downside potential. Now we will be watching for chance to short but beware of strong upside action and breaking of 1.41 level.
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.
