Sive Morten
Special Consultant to the FPA
- Messages
- 18,527
Fundamentals
Today we update our view of GBP. Speaking on gold market that we usually take a look at with our 2nd weekend report - it has hit our long-term 1262 target last week. Now we need to see reaction on major weekly support. Gold stands in downtrend now, SPDR fund storages drops as well and now stand for 824 tonnes. This 12 tonnes lower compares to beginning of the month. Investors have careful look at gold perspectives:
"Gold has rebounded a little bit from the lower side due to the weakness in the dollar, said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong. The trade war is affecting gold for the time-being. Unless the dollar weakens, do not expect gold to move too high, Leung added.
In Great Britain situation also stands not too optimistic. Market has got a relief last week after a Bank of England meeting revived expectations of a rate hike this year, but fears of a breakdown in Brexit talks next week limited sterling’s gains.
Major driving factors for GBP stands the same - weak national economy fundamentals and Brexit problems. We've talked about them in details in our previous reports. And they are still stand as major factors. That's why our long-term view on GBP remains bearish. But in short-term perspective, pound sterling could follow common tendency and show some relief.
Sterling rallied on Thursday, though, when the Bank of England’s chief economist unexpectedly voted for an interest rate hike.
The central bank kept interest rates on hold but the decision by Andy Haldane to join two other policymakers in calling for rates to rise to 0.75 percent lifted the pound off a seven-month low as expectations grew that the BoE could tighten policy in August.
Reuters give following update on current situation in economy and Brexit negotiations:
Markets now see a nearly 50 percent likelihood of the BoE raising interest rates in August by 25 basis points and a 90 percent chance of a rate hike happening by the end of 2018.
“The BoE may prefer to act sooner rather than later given Brexit uncertainties may intensify later this year and make a November rate hike difficult,” analysts at MUFG said.
Nine months before Britain’s exit from the EU, the country seems to be trapped in a period of relatively low growth. In the first quarter of 2018, the economy grew by just 0.1 percent, the slowest rate since 2012.
Some market observers say the pound could rise in the coming weeks if economic data suggests any turnaround in the economy because it would help cement expectations of a rate hike.
But an EU summit on June 28-29 at which Britain is hoping to make progress in securing a favourable Brexit deal with the EU could hurt sterling, strategists say.
Prime Minister Theresa May is struggling to find a proposal on post-Brexit customs arrangements - the biggest stumbling block so far in exit talks - to take into negotiations with Brussels.
“For now I would focus more on the EU summit than the Bank of England’s August meeting. I expect the summit to be harsh on Britain and for GBP to fall next week as a result,” said ACLS analyst Marshall Gittler.
COT Report
In general, Speculators turned bullish on the dollar for the first time since July last year, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday, as sentiment improved after the Federal Reserve forecast two more interest rate hikes this year.
The value of the net long dollar position was $8.64 billion in the week ended June 19, shifting from a net short of $7.42 billion the previous week. This week’s net long dollar position was the largest since May 16 last year. Yesterday, by the way we've talk on big contraction of EUR long positions...
“This is capitulation of the dollar shorts that were in position at the beginning of the year,” said Karl Schamotta, director of global product and market strategy, at Cambridge Global Payments in Toronto.
“Monetary tightening is continuing at pace in the United States while there has been a moderation in terms of expectations around the ECB (European Central Bank) and other major central banks,” he added.
On GBP we see the same tendency - position aggressively has turned net short last week with significant drop in long speculative positions:
This data tells that GBP has clear bearish sentiment.
Technicals
Monthly
Long term charts mostly stand in relation to fundamental processes rather some technical short-term issues. From this point of view GBP action on monthly chart absolutely corresponds to our view on UK economy and its perspectives. Right now we will focus only on nearest target of 1.30, but we remind you our long tong all-time AB=CD OP target around 0.95. Recent bottom of 1.22 is, actually, COP target.
It is difficult to talk definitely guys, but in my opinion most undervalued factor for UK is flaw in its relation with EU as economical as political. EU is turning East right now to huge new markets and economical possibilities - Iran, Middle East, Asia and Russia, of course. This is alternative to UK market, especially when UK turns up its nose at EU. At the same time, UK is an island, it strongly depends on its closest neighbor - EU. Not only in terms of mutual trading, but also in terms of goods logistic. If this flaw will start to wide - 0.95 of GBP/USD could become a reality.
Speaking on technical issues, our suggestion that GBP hardly will break through 1.40 area was correct. This was strong resistance, top of harmonic swing and at 1.40 long positions were highly saturated.
Cable has failed to break through Yearly Pivot resistance 1. This fact tells, that current upside action is just a retracement within long-term bear trend.
Picture that we see right now corresponds to EUR monthly chart. June month also stands as inside one and takes the shape of high wave pattern very close to YPP. As last week lows was at 1.31, we probably could say that our 1.28-1.30 target has been reached. Next month will be interesting because price will flirt with MACDP line.
Weekly
On weekly chart, after major K-support was broken, price has reached minor support area of 5/8 Fib level and MPS1. GBP has tested MPP in the beginning of the month but failed to pass through it. Here we mostly watch for the same pattern as on EUR - potential H&S.
GBP has stopped here mostly due completion of our Double Top target but not due minor support. If upward bounce will happen - it could reach 1.36 area to keep harmonic the shape of H&S pattern.
Whether this bounce up will happen or not we should understand by patterns on daily chart and how price will respect it. Since weekly support is not a kind of strong one, and price is not at Oversold, the background of possible rally doesn't look undoubtful.
Daily
On Friday we already have mentioned that cable pips to pips has completed our Double Top target. Above we've mentioned patterns on daily chart, that we should keep an eye on and which should clarify further price behavior. At first glance we could get small reverse H&S pattern right at weekly support and Double Top target. It looks obvious. But, to be honest, guys, I suspect another dive before upward action could start.
There are two reasons for that. First is, upward action that we see right now is too slow. It doesn't look like reversal and sentiment shift. Besides, bearish grabber has been formed here - the same as on EUR.
Second - major lows support stands slightly lower, around 1.30-1.3050 and there is YPP !!! which has not been tested yet this year. Market will gravitate to it. These reasons make me think that another drop is possible before upward action could happen.
That's why I would suspect that another pattern has more chances to appear here...
Intraday
This is 3-Drive "Buy".
To get an early sign whether we correct or not with our 3-Drive suggestion - keep an eye on hourly chart. Shape of "2nd" drive is a H&S pattern. Once it will fail - this will confirm drop to 1.3050 area. If it will start to work and GBP will move above top of second drive - it will be the point in favor daily reverse H&S and tell that 3-Drive probably will not happen.
Market should show retracement to 1.32 area to form right arm, but drop below this level will confirm our idea of 3-Drive pattern:
Conclusion:
GB now is involving in multiple processes as political as economical. Financially, UK economy now stands in a difficult period. This gives a lot of uncertainty even in nearest future, including BoE policy. Currently we have bearish view on GBP and despite possible upside relief within few weeks - we suggest that cable will become weaker within longer period.
In short-term perspective, our trading range stands between 1.30-1.36 area. This is the range of weekly H&S pattern. On coming week we mostly will deal with first stage of this process - initial moment of upward reversal.
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 we update our view of GBP. Speaking on gold market that we usually take a look at with our 2nd weekend report - it has hit our long-term 1262 target last week. Now we need to see reaction on major weekly support. Gold stands in downtrend now, SPDR fund storages drops as well and now stand for 824 tonnes. This 12 tonnes lower compares to beginning of the month. Investors have careful look at gold perspectives:
"Gold has rebounded a little bit from the lower side due to the weakness in the dollar, said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong. The trade war is affecting gold for the time-being. Unless the dollar weakens, do not expect gold to move too high, Leung added.
In Great Britain situation also stands not too optimistic. Market has got a relief last week after a Bank of England meeting revived expectations of a rate hike this year, but fears of a breakdown in Brexit talks next week limited sterling’s gains.
Major driving factors for GBP stands the same - weak national economy fundamentals and Brexit problems. We've talked about them in details in our previous reports. And they are still stand as major factors. That's why our long-term view on GBP remains bearish. But in short-term perspective, pound sterling could follow common tendency and show some relief.
Sterling rallied on Thursday, though, when the Bank of England’s chief economist unexpectedly voted for an interest rate hike.
The central bank kept interest rates on hold but the decision by Andy Haldane to join two other policymakers in calling for rates to rise to 0.75 percent lifted the pound off a seven-month low as expectations grew that the BoE could tighten policy in August.
Reuters give following update on current situation in economy and Brexit negotiations:
Markets now see a nearly 50 percent likelihood of the BoE raising interest rates in August by 25 basis points and a 90 percent chance of a rate hike happening by the end of 2018.
“The BoE may prefer to act sooner rather than later given Brexit uncertainties may intensify later this year and make a November rate hike difficult,” analysts at MUFG said.
Nine months before Britain’s exit from the EU, the country seems to be trapped in a period of relatively low growth. In the first quarter of 2018, the economy grew by just 0.1 percent, the slowest rate since 2012.
Some market observers say the pound could rise in the coming weeks if economic data suggests any turnaround in the economy because it would help cement expectations of a rate hike.
But an EU summit on June 28-29 at which Britain is hoping to make progress in securing a favourable Brexit deal with the EU could hurt sterling, strategists say.
Prime Minister Theresa May is struggling to find a proposal on post-Brexit customs arrangements - the biggest stumbling block so far in exit talks - to take into negotiations with Brussels.
“For now I would focus more on the EU summit than the Bank of England’s August meeting. I expect the summit to be harsh on Britain and for GBP to fall next week as a result,” said ACLS analyst Marshall Gittler.
COT Report
In general, Speculators turned bullish on the dollar for the first time since July last year, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday, as sentiment improved after the Federal Reserve forecast two more interest rate hikes this year.
The value of the net long dollar position was $8.64 billion in the week ended June 19, shifting from a net short of $7.42 billion the previous week. This week’s net long dollar position was the largest since May 16 last year. Yesterday, by the way we've talk on big contraction of EUR long positions...
“This is capitulation of the dollar shorts that were in position at the beginning of the year,” said Karl Schamotta, director of global product and market strategy, at Cambridge Global Payments in Toronto.
“Monetary tightening is continuing at pace in the United States while there has been a moderation in terms of expectations around the ECB (European Central Bank) and other major central banks,” he added.
On GBP we see the same tendency - position aggressively has turned net short last week with significant drop in long speculative positions:
This data tells that GBP has clear bearish sentiment.
Technicals
Monthly
Long term charts mostly stand in relation to fundamental processes rather some technical short-term issues. From this point of view GBP action on monthly chart absolutely corresponds to our view on UK economy and its perspectives. Right now we will focus only on nearest target of 1.30, but we remind you our long tong all-time AB=CD OP target around 0.95. Recent bottom of 1.22 is, actually, COP target.
It is difficult to talk definitely guys, but in my opinion most undervalued factor for UK is flaw in its relation with EU as economical as political. EU is turning East right now to huge new markets and economical possibilities - Iran, Middle East, Asia and Russia, of course. This is alternative to UK market, especially when UK turns up its nose at EU. At the same time, UK is an island, it strongly depends on its closest neighbor - EU. Not only in terms of mutual trading, but also in terms of goods logistic. If this flaw will start to wide - 0.95 of GBP/USD could become a reality.
Speaking on technical issues, our suggestion that GBP hardly will break through 1.40 area was correct. This was strong resistance, top of harmonic swing and at 1.40 long positions were highly saturated.
Cable has failed to break through Yearly Pivot resistance 1. This fact tells, that current upside action is just a retracement within long-term bear trend.
Picture that we see right now corresponds to EUR monthly chart. June month also stands as inside one and takes the shape of high wave pattern very close to YPP. As last week lows was at 1.31, we probably could say that our 1.28-1.30 target has been reached. Next month will be interesting because price will flirt with MACDP line.
Weekly
On weekly chart, after major K-support was broken, price has reached minor support area of 5/8 Fib level and MPS1. GBP has tested MPP in the beginning of the month but failed to pass through it. Here we mostly watch for the same pattern as on EUR - potential H&S.
GBP has stopped here mostly due completion of our Double Top target but not due minor support. If upward bounce will happen - it could reach 1.36 area to keep harmonic the shape of H&S pattern.
Whether this bounce up will happen or not we should understand by patterns on daily chart and how price will respect it. Since weekly support is not a kind of strong one, and price is not at Oversold, the background of possible rally doesn't look undoubtful.
Daily
On Friday we already have mentioned that cable pips to pips has completed our Double Top target. Above we've mentioned patterns on daily chart, that we should keep an eye on and which should clarify further price behavior. At first glance we could get small reverse H&S pattern right at weekly support and Double Top target. It looks obvious. But, to be honest, guys, I suspect another dive before upward action could start.
There are two reasons for that. First is, upward action that we see right now is too slow. It doesn't look like reversal and sentiment shift. Besides, bearish grabber has been formed here - the same as on EUR.
Second - major lows support stands slightly lower, around 1.30-1.3050 and there is YPP !!! which has not been tested yet this year. Market will gravitate to it. These reasons make me think that another drop is possible before upward action could happen.
That's why I would suspect that another pattern has more chances to appear here...
Intraday
This is 3-Drive "Buy".
To get an early sign whether we correct or not with our 3-Drive suggestion - keep an eye on hourly chart. Shape of "2nd" drive is a H&S pattern. Once it will fail - this will confirm drop to 1.3050 area. If it will start to work and GBP will move above top of second drive - it will be the point in favor daily reverse H&S and tell that 3-Drive probably will not happen.
Market should show retracement to 1.32 area to form right arm, but drop below this level will confirm our idea of 3-Drive pattern:
Conclusion:
GB now is involving in multiple processes as political as economical. Financially, UK economy now stands in a difficult period. This gives a lot of uncertainty even in nearest future, including BoE policy. Currently we have bearish view on GBP and despite possible upside relief within few weeks - we suggest that cable will become weaker within longer period.
In short-term perspective, our trading range stands between 1.30-1.36 area. This is the range of weekly H&S pattern. On coming week we mostly will deal with first stage of this process - initial moment of upward reversal.
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.