Sive Morten
Special Consultant to the FPA
- Messages
- 18,669
Fundamentals
Well, guys, today we will take a look at GBP. Our recent discussion was not too far and it has fundamental view on perspective of rate hike in UK:
https://www.forexpeacearmy.com/community/threads/forex-pro-weekly-february-29-04-2016.44314/
Now we could read new comments on GBP in a light of recent BoE decision and Brexit perspectives. But first – brief look at FX market in general. Here we start to here new comments that we’ve announced even last week – on currency war, Emerging markets could get an advantage since their economies stand in tight relation to food and commodities. Also AUD and CAD could join them.
The dollar rose against most major currencies on Friday, recovering from a five-month low, as traders exited short positions after two straight days of selling in the wake of the Federal Reserve's cautious view on global market developments.
The dollar index, which measures the greenback against six major currencies, was up 0.4 percent but analysts said doubt remained that the U.S. currency would regain its footing in the near term.
It was down by just over 1 percent for the week, marking the third straight week of losses for the index.
The dollar rose 0.3 percent to 111.75 yen on Friday, moving further from a 17-month low on Thursday of 110.65. For the week, the dollar shed nearly 2 percent against the yen, its steepest fall against the Japanese currency in five weeks.
UBS lowered its short-term forecasts for dollar-yen, moving its three- and six-month targets lower.
"With the Fed reaffirming its caution in hiking rates, we expect a more gradual recovery of the USDJPY pair," the UBS analysts said in the note.
The euro retreated from a five-week high of $1.1342 , falling 0.45 percent against the dollar to $1.1265. It was up just over 1 percent for the week.
"We obviously had this very, very strong reaction after the Fed," said Axel Merk, president and portfolio manager at Merk Hard Currency Fund in Palo Alto, California.
As for Friday's action, it was largely "just a squaring of positions at the end of the week," Merk added. "It's Friday. That's the biggest driver here."
The dollar also managed to rebound from earlier lows against a number of emerging market currencies on Friday, after falling in earlier trading.
The dollar rose against the oil-linked Mexican peso and Russian ruble, gaining 0.2 percent and 0.25 percent respectively. The dollar gained 0.1 percent against the Colombian peso.
Despite Friday's gains, the dollar was down for the week against all three currencies and remained at or near lows for the year.
The potential of further dollar weakness, along with more accommodative moves from the European Central Bank and Bank of Japan, which both hold negative interest rates, has been a boon for emerging markets so far this year, said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.
A weaker dollar benefits emerging market currencies because it lowers the price of commodities like oil, coffee and metals, increasing those countries' profits from exports.
Now we turn to UK:
Sterling dipped back below $1.45 on Friday after racking up its biggest daily gains since late-2009 in a broad sell-off of the dollar a day earlier.
The Bank of England, contrary to some bets on the margins in markets, did nothing after its meeting on Thursday to undermine the improvement in the pound's value since it fell to a 7-year low around $1.38 at the end of February.
But given concerns over gains for the "Out" campaign in the run-up to June's referendum on whether Britain should stay in the European Union, traders say sterling still looks vulnerable to any improvement in sentiment for its major currency peers, particularly the dollar.
By late afternoon in London, the pound was marginally lower against the dollar at $1.4475 and 0.2 percent higher at 77.95 pence per euro.
"The pound's rally has been all about a squaring of positions – we prefer resistance to come in between here and $1.4600 to keep the focus on the downside," said John Hardy, Head of FX Strategy at Saxo Bank.
Sterling has gained almost exactly as much as the euro against the dollar over the past two weeks, having sunk 9 percent since December, while the common currency remained roughly steady.
That suggests the main driver of the pound's recovery has been external factors. This week's biggest domestic event was a poll on Tuesday showing the "Out" camp in the 'Brexit' referendum campaign nudging ahead on popular support.
A number of banks have warned of the risks of a crisis that could see sterling slide by up to 20 percent if Britain votes to leave the European Union on June 23.
Investors worry that leaving the European Union would depress growth and threaten the huge foreign investment flows Britain needs to fund its current account deficit, one of the biggest in the developed world at about 4 percent of national output.
"Technically, we hit a lot of resistance around $1.45 but Brexit fears have gone nowhere," said Tobias Davis, Head of Corporate Treasury Sales at Western Union in London.
"We saw some short-covering take place yesterday and we could well be in a position today where the shorts come back out in force and send cable back towards 1.44 and below."
March 15 (Reuters) - In or out, Britain will pay a price in delayed investment and consumption and increased volatility simply because it is voting on its European Union future.
Slated for June 23, the Brexit referendum is tough to call and impossible to ignore. Polls give the 'remain' camp an insecure single-digit lead and predictions derived from political betting imply a 65-70 percent chance UK voters opt to stay.
Polls and market prices are a poor security in comparison with the size of the issues at stake, implying that some households and particularly businesses will delay decisions and consumption until after the election, curbing output regardless of outcome. Financial markets have already moved, sending the pound lower against other major currencies, and will likely become more volatile in the run-up to the vote.
To be sure, the impact ahead of the vote will only be a small fraction of the hit to growth Britain would suffer if it voted to leave the EU, but a small percentage of a very large number is still substantial. That’s because a 'leave' vote will produce a mare’s nest, as Britain must negotiate the terms of its exit with the EU, a process which would last at least two years and include numerous separate risks in numerous countries. That’s even before we consider that a vote in favor of Brexit would likely bring down Prime Minister David Cameron and quite possibly result in a vote by Scotland to leave Britain.
During the time after a 'leave' vote, British relations with Europe would run more or less as they do now but no-one would really understand for how long and what comes after. So while companies inside and outside Britain would want to continue to do cross-border business, their ability to understand the costs and benefits of that would be highly impaired.
That’s enough of a risk to tilt many towards putting off investment until matters become clearer.
After a vote, this impact will be magnified, according to Kallum Pickering, an economist at Berenberg Bank.
“It is very likely that UK economic conditions deteriorate in the short run, despite no real change to the UK’s EU status, because economic participants will begin to act in accordance with their long-term expectations, which will be materially weaker,” he wrote in a note to clients.
SELF-FULFILLING RECESSIONS
Even though a vote to leave would hit sterling’s value which may drive inflation higher, the Bank of England may well react by loosening policy - either actual interest rates or through more quantitative easing - in a bid to short-circuit what could easily be a self-fulfilling descent into recession.
Societe General estimates a 0.50 to 1 percentage point annual hit to British output for a decade following a vote to leave the EU, with a notable hit to exports due to increased tariffs and tougher and more uncertain conditions for Britain’s huge financial services industry.
None of this is, of course, inevitable, nor is it to say that Britain will necessarily do worse outside the EU than it would if it remained. The future of the EU itself is far from clear and secure even putting aside British willingness to remain, and trade policy, which would be one of the biggest uncertainties after an exit, is at a particularly unstable period globally.
One need only look at the election in the U.S. to see that the rules of trade and globalization as they’ve been developed and followed in recent decades are by no means a permanent reality.
That’s all highly speculative, but what isn’t is that uncertainty over what the UK is and does is as high as it has been in the career of all but the longest-lived investor.
And where there is high uncertainty, the easy bet is growing financial market volatility. On some measures, markets are now pricing in the highest amount of volatility on the FTSE 100 index of shares seen in the past 15 years, a period which included the Sept. 11, 2001 attacks and the greatest financial crisis since the Depression. That kind of volatility is costly now and, if sustained, would rise in impact.
And all of this is before we consider that a vote to leave would have an impact far beyond Britain, raising difficult-to-answer questions and difficult-to-pay costs for a Europe already struggling politically and economically.
These are the kinds of issues that rightly make people and companies pause.
Everything in Britain may well stay the same, but while the costs of leaving look higher, there will be bills either way.
So, guys, recent comments mostly confirm our previous thoughts and analysis that BoE statement is mostly populistic issue rather than real re-assessment of current financial situation in UK.
Recent CFTC data on GBP shows contraction of the market. Yes net short position has dropped strongly but at the same time open interest collapsed. It means that currently we mostly have a deal with short covering, profit taking. It will be interesting to see what will happen next:
We think that this is temporal situation and it could give us great opportunity to take good short position at sweet price level.
Also guys, it is interesting observation dedicated to Crude Oil market. It has just relative relation to GBP…I would ask you - have you recognized that Oil boom in US turned to depression and mostly collapsed as soon as illegal ways of Iraq and Syria crude oil delivery were destroyed? Simultaneously multiple US oil companies have made fast revision of oil stores and ~70-90% were written-off. Hedge funds have closed very large short positions on Crude Oil on futures market. Do you have the same thoughts as me?
Right. Here we have reasonable question… It seems that US have extracted no crude oil at all. This was just pirate and hidden delivery of stolen oil from Middle East through Turkey and Israel. Now it is interesting, what will happen to Crude Oil market, Loonie, and how increase in Crude Oil prices will impact major world economies – Japan, US, EU and UK. And another shock – Russia and US gradually starting campaign on Israel – to put it back to territory of 1967 year and cancel all illegal annexations since then. East Jerusalem will be the capital of Palestine. Not now, and probably not tomorrow, but this process already has started. Geopolicy is a great stuff, guys and we have to dedicate some time to it either. This is very important to our understanding of gold market, for example.
Technicals
Monthly
Here, nothing drastical has happened. Some upward bounce but its scale insignificant for this time frame. Besides we do not have visible reasons and technical supports in area where this upside bounce has started – no AB-CD extensions, Fib levels, pivots etc. That’s why we treat this move as retracement yet and stand with our previous analysis on downward continuation in long-term perspective.
Long Term Forecast on GBP rate
Our long term analysis suggests first appearing of new high on 4th wave at ~1.76 level and then starting of last 5th wave down. First condition was accomplished and we’ve got new high, but it was a bit lower – not 1.76 but 1.72. This was and is all time support/resistance area. Now we stand in final part of our journey. According to our 2013 analysis market should reach lows at 1.35 area. Let’s see what additional information we have right now."
Trend is bearish here, but GBP is not at oversold. So, GBP picture right now looks simple. Market has broken all meaningful supports on a way down. IT has started from Yearly Pivot, then major 5/8, Yearly PS1 and former low (marked by arrow). Now the only destination is previous lows, and then our first long-term target around 1.30. Here we have to make some notes.
First, is - lows will not survive, despite how long they will hold price. Mostly because AB-CD target stands right below it. If even market will not drop further - it will wash out lows. There is really high probability for this.
Second - It is interesting, that if we would take 2.11 level as our "A" point - 100% AB=CD target (next one) will stand precisely around 0.8 level and will coincide with Fanthom Consulting analysis. Interesting... Right now by our AB-CD 100% target stands around 1.05....
That's being said monthly chart still suggests further downward action to previous lows around 1.35 first. Current bounce pushes market above MPS1. This action has shy relation to monthly chart and we should search reasons and probable destination of this move on lower time frames. What we do know here - this bounce could give us excellent chance to take short position until overall bearish setup holds here.
Weekly
So, here we see the reason for bounce us. It's butterfly completion point and weekly oversold. Trend has turned bullish. Last time we've foreseen this possibility but come to conclusion that retracement up should be mild, because, as you can see - major AB=CD target around 1.33 has not been met yet.
Upside action has started with nicely looking engulfing or piercing in the cloud pattern whatever you like more. Overbought resistance stands at 1.4830 right now. Also market has touched MPR1.
On coming week we probably will see - whether this retracement will over or it turn to larger scale retracement. Since CFTC data shows that current action mostly is supported by short covering, so it should exhaust fast. This also will be answer - what we have a deal with.
Daily
Here Cable is forming reverse H&S pattern but it stands at turning point. Take a look - red lines mark harmonic swings. The first leg (let's call it AB) of current upside action initially was equal to previous one. This was a reaction on 1.27 weekly butterfly target. After it has been completed - market turned down, but later surprisingly stopped and turned up again. So, if GBP will break harmony and will show another leg up - this could lead to deeper upside retracement.
And right now it stands at breakeven point. IT seems that further upward action was stopped by daily overbought last week. At the same time, as you will see on intraday charts, we have reasons to suggest that GBP still will reach 1.4615 area which will become a neckline for H&S pattern, AB-CD completion point, and - take a look it's an important previous low.
This scenario leads us to some conclusions. First - if any retracement down will happen, they should be minor. Major bounce should happen on a right shoulder, after 1.4613 area will be touched. Second - currently doesn't make a big sense to speak on further perspective until H&S will be completed. Why? Because, if market will not confirm our suggestion and turn down - another pattern could be formed here - 3-Drive "buy". I only think about it because daily butterfly is 1.27 but not 1.618. And if you will carefully look at weekly chart - you'll see that weekly butterfly target also has not been quite reached.
4-hour
Thus, based on our conclusions we could prepare short-term plan on coming week. The major task here is to catch the type of the pattern. What will it be - H&S, 3-Drive, or what?
Take a look at the chart:
AB=CD target also will be WPR1. Market has closed the Gap. The most important thing is that GBP has exceeded 0.618 AB-CD target already and CD leg is faster than AB. It means that downward retracement here should be very small and major reason for it is daily overbought only. Deep retracement here is unnatural.
Hence, deep retracement will tell that we probably will get 3-Drive or something else but not H&S.
This chart shows what particular levels we expect to get. They should be either nearest 3/8 support, or at least K-support, but not lower. K-support will be very strong, since it is accompanied by WPP and gap. Breaking below it will tell us that something is wrong with H&S pattern:
Conclusion:
Recent action barely impacts long-term perspectives for GBP. Mostly it stands in relation to daily and intraday picture and is tactical. That's why our task here is to get answer on potential depth of upside retracement and what shape it will take. Right now we suggest either H&S or 3-Drive depending on the shape of 4-hour chart.
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.
Well, guys, today we will take a look at GBP. Our recent discussion was not too far and it has fundamental view on perspective of rate hike in UK:
https://www.forexpeacearmy.com/community/threads/forex-pro-weekly-february-29-04-2016.44314/
Now we could read new comments on GBP in a light of recent BoE decision and Brexit perspectives. But first – brief look at FX market in general. Here we start to here new comments that we’ve announced even last week – on currency war, Emerging markets could get an advantage since their economies stand in tight relation to food and commodities. Also AUD and CAD could join them.
The dollar rose against most major currencies on Friday, recovering from a five-month low, as traders exited short positions after two straight days of selling in the wake of the Federal Reserve's cautious view on global market developments.
The dollar index, which measures the greenback against six major currencies, was up 0.4 percent but analysts said doubt remained that the U.S. currency would regain its footing in the near term.
It was down by just over 1 percent for the week, marking the third straight week of losses for the index.
The dollar rose 0.3 percent to 111.75 yen on Friday, moving further from a 17-month low on Thursday of 110.65. For the week, the dollar shed nearly 2 percent against the yen, its steepest fall against the Japanese currency in five weeks.
UBS lowered its short-term forecasts for dollar-yen, moving its three- and six-month targets lower.
"With the Fed reaffirming its caution in hiking rates, we expect a more gradual recovery of the USDJPY pair," the UBS analysts said in the note.
The euro retreated from a five-week high of $1.1342 , falling 0.45 percent against the dollar to $1.1265. It was up just over 1 percent for the week.
"We obviously had this very, very strong reaction after the Fed," said Axel Merk, president and portfolio manager at Merk Hard Currency Fund in Palo Alto, California.
As for Friday's action, it was largely "just a squaring of positions at the end of the week," Merk added. "It's Friday. That's the biggest driver here."
The dollar also managed to rebound from earlier lows against a number of emerging market currencies on Friday, after falling in earlier trading.
The dollar rose against the oil-linked Mexican peso and Russian ruble, gaining 0.2 percent and 0.25 percent respectively. The dollar gained 0.1 percent against the Colombian peso.
Despite Friday's gains, the dollar was down for the week against all three currencies and remained at or near lows for the year.
The potential of further dollar weakness, along with more accommodative moves from the European Central Bank and Bank of Japan, which both hold negative interest rates, has been a boon for emerging markets so far this year, said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.
A weaker dollar benefits emerging market currencies because it lowers the price of commodities like oil, coffee and metals, increasing those countries' profits from exports.
Now we turn to UK:
Sterling dipped back below $1.45 on Friday after racking up its biggest daily gains since late-2009 in a broad sell-off of the dollar a day earlier.
The Bank of England, contrary to some bets on the margins in markets, did nothing after its meeting on Thursday to undermine the improvement in the pound's value since it fell to a 7-year low around $1.38 at the end of February.
But given concerns over gains for the "Out" campaign in the run-up to June's referendum on whether Britain should stay in the European Union, traders say sterling still looks vulnerable to any improvement in sentiment for its major currency peers, particularly the dollar.
By late afternoon in London, the pound was marginally lower against the dollar at $1.4475 and 0.2 percent higher at 77.95 pence per euro.
"The pound's rally has been all about a squaring of positions – we prefer resistance to come in between here and $1.4600 to keep the focus on the downside," said John Hardy, Head of FX Strategy at Saxo Bank.
Sterling has gained almost exactly as much as the euro against the dollar over the past two weeks, having sunk 9 percent since December, while the common currency remained roughly steady.
That suggests the main driver of the pound's recovery has been external factors. This week's biggest domestic event was a poll on Tuesday showing the "Out" camp in the 'Brexit' referendum campaign nudging ahead on popular support.
A number of banks have warned of the risks of a crisis that could see sterling slide by up to 20 percent if Britain votes to leave the European Union on June 23.
Investors worry that leaving the European Union would depress growth and threaten the huge foreign investment flows Britain needs to fund its current account deficit, one of the biggest in the developed world at about 4 percent of national output.
"Technically, we hit a lot of resistance around $1.45 but Brexit fears have gone nowhere," said Tobias Davis, Head of Corporate Treasury Sales at Western Union in London.
"We saw some short-covering take place yesterday and we could well be in a position today where the shorts come back out in force and send cable back towards 1.44 and below."
March 15 (Reuters) - In or out, Britain will pay a price in delayed investment and consumption and increased volatility simply because it is voting on its European Union future.
Slated for June 23, the Brexit referendum is tough to call and impossible to ignore. Polls give the 'remain' camp an insecure single-digit lead and predictions derived from political betting imply a 65-70 percent chance UK voters opt to stay.
Polls and market prices are a poor security in comparison with the size of the issues at stake, implying that some households and particularly businesses will delay decisions and consumption until after the election, curbing output regardless of outcome. Financial markets have already moved, sending the pound lower against other major currencies, and will likely become more volatile in the run-up to the vote.
To be sure, the impact ahead of the vote will only be a small fraction of the hit to growth Britain would suffer if it voted to leave the EU, but a small percentage of a very large number is still substantial. That’s because a 'leave' vote will produce a mare’s nest, as Britain must negotiate the terms of its exit with the EU, a process which would last at least two years and include numerous separate risks in numerous countries. That’s even before we consider that a vote in favor of Brexit would likely bring down Prime Minister David Cameron and quite possibly result in a vote by Scotland to leave Britain.
During the time after a 'leave' vote, British relations with Europe would run more or less as they do now but no-one would really understand for how long and what comes after. So while companies inside and outside Britain would want to continue to do cross-border business, their ability to understand the costs and benefits of that would be highly impaired.
That’s enough of a risk to tilt many towards putting off investment until matters become clearer.
After a vote, this impact will be magnified, according to Kallum Pickering, an economist at Berenberg Bank.
“It is very likely that UK economic conditions deteriorate in the short run, despite no real change to the UK’s EU status, because economic participants will begin to act in accordance with their long-term expectations, which will be materially weaker,” he wrote in a note to clients.
SELF-FULFILLING RECESSIONS
Even though a vote to leave would hit sterling’s value which may drive inflation higher, the Bank of England may well react by loosening policy - either actual interest rates or through more quantitative easing - in a bid to short-circuit what could easily be a self-fulfilling descent into recession.
Societe General estimates a 0.50 to 1 percentage point annual hit to British output for a decade following a vote to leave the EU, with a notable hit to exports due to increased tariffs and tougher and more uncertain conditions for Britain’s huge financial services industry.
None of this is, of course, inevitable, nor is it to say that Britain will necessarily do worse outside the EU than it would if it remained. The future of the EU itself is far from clear and secure even putting aside British willingness to remain, and trade policy, which would be one of the biggest uncertainties after an exit, is at a particularly unstable period globally.
One need only look at the election in the U.S. to see that the rules of trade and globalization as they’ve been developed and followed in recent decades are by no means a permanent reality.
That’s all highly speculative, but what isn’t is that uncertainty over what the UK is and does is as high as it has been in the career of all but the longest-lived investor.
And where there is high uncertainty, the easy bet is growing financial market volatility. On some measures, markets are now pricing in the highest amount of volatility on the FTSE 100 index of shares seen in the past 15 years, a period which included the Sept. 11, 2001 attacks and the greatest financial crisis since the Depression. That kind of volatility is costly now and, if sustained, would rise in impact.
And all of this is before we consider that a vote to leave would have an impact far beyond Britain, raising difficult-to-answer questions and difficult-to-pay costs for a Europe already struggling politically and economically.
These are the kinds of issues that rightly make people and companies pause.
Everything in Britain may well stay the same, but while the costs of leaving look higher, there will be bills either way.
So, guys, recent comments mostly confirm our previous thoughts and analysis that BoE statement is mostly populistic issue rather than real re-assessment of current financial situation in UK.
Recent CFTC data on GBP shows contraction of the market. Yes net short position has dropped strongly but at the same time open interest collapsed. It means that currently we mostly have a deal with short covering, profit taking. It will be interesting to see what will happen next:
We think that this is temporal situation and it could give us great opportunity to take good short position at sweet price level.
Also guys, it is interesting observation dedicated to Crude Oil market. It has just relative relation to GBP…I would ask you - have you recognized that Oil boom in US turned to depression and mostly collapsed as soon as illegal ways of Iraq and Syria crude oil delivery were destroyed? Simultaneously multiple US oil companies have made fast revision of oil stores and ~70-90% were written-off. Hedge funds have closed very large short positions on Crude Oil on futures market. Do you have the same thoughts as me?
Right. Here we have reasonable question… It seems that US have extracted no crude oil at all. This was just pirate and hidden delivery of stolen oil from Middle East through Turkey and Israel. Now it is interesting, what will happen to Crude Oil market, Loonie, and how increase in Crude Oil prices will impact major world economies – Japan, US, EU and UK. And another shock – Russia and US gradually starting campaign on Israel – to put it back to territory of 1967 year and cancel all illegal annexations since then. East Jerusalem will be the capital of Palestine. Not now, and probably not tomorrow, but this process already has started. Geopolicy is a great stuff, guys and we have to dedicate some time to it either. This is very important to our understanding of gold market, for example.
Technicals
Monthly
Here, nothing drastical has happened. Some upward bounce but its scale insignificant for this time frame. Besides we do not have visible reasons and technical supports in area where this upside bounce has started – no AB-CD extensions, Fib levels, pivots etc. That’s why we treat this move as retracement yet and stand with our previous analysis on downward continuation in long-term perspective.
Long Term Forecast on GBP rate
Our long term analysis suggests first appearing of new high on 4th wave at ~1.76 level and then starting of last 5th wave down. First condition was accomplished and we’ve got new high, but it was a bit lower – not 1.76 but 1.72. This was and is all time support/resistance area. Now we stand in final part of our journey. According to our 2013 analysis market should reach lows at 1.35 area. Let’s see what additional information we have right now."
Trend is bearish here, but GBP is not at oversold. So, GBP picture right now looks simple. Market has broken all meaningful supports on a way down. IT has started from Yearly Pivot, then major 5/8, Yearly PS1 and former low (marked by arrow). Now the only destination is previous lows, and then our first long-term target around 1.30. Here we have to make some notes.
First, is - lows will not survive, despite how long they will hold price. Mostly because AB-CD target stands right below it. If even market will not drop further - it will wash out lows. There is really high probability for this.
Second - It is interesting, that if we would take 2.11 level as our "A" point - 100% AB=CD target (next one) will stand precisely around 0.8 level and will coincide with Fanthom Consulting analysis. Interesting... Right now by our AB-CD 100% target stands around 1.05....
That's being said monthly chart still suggests further downward action to previous lows around 1.35 first. Current bounce pushes market above MPS1. This action has shy relation to monthly chart and we should search reasons and probable destination of this move on lower time frames. What we do know here - this bounce could give us excellent chance to take short position until overall bearish setup holds here.
Weekly
So, here we see the reason for bounce us. It's butterfly completion point and weekly oversold. Trend has turned bullish. Last time we've foreseen this possibility but come to conclusion that retracement up should be mild, because, as you can see - major AB=CD target around 1.33 has not been met yet.
Upside action has started with nicely looking engulfing or piercing in the cloud pattern whatever you like more. Overbought resistance stands at 1.4830 right now. Also market has touched MPR1.
On coming week we probably will see - whether this retracement will over or it turn to larger scale retracement. Since CFTC data shows that current action mostly is supported by short covering, so it should exhaust fast. This also will be answer - what we have a deal with.
Daily
Here Cable is forming reverse H&S pattern but it stands at turning point. Take a look - red lines mark harmonic swings. The first leg (let's call it AB) of current upside action initially was equal to previous one. This was a reaction on 1.27 weekly butterfly target. After it has been completed - market turned down, but later surprisingly stopped and turned up again. So, if GBP will break harmony and will show another leg up - this could lead to deeper upside retracement.
And right now it stands at breakeven point. IT seems that further upward action was stopped by daily overbought last week. At the same time, as you will see on intraday charts, we have reasons to suggest that GBP still will reach 1.4615 area which will become a neckline for H&S pattern, AB-CD completion point, and - take a look it's an important previous low.
This scenario leads us to some conclusions. First - if any retracement down will happen, they should be minor. Major bounce should happen on a right shoulder, after 1.4613 area will be touched. Second - currently doesn't make a big sense to speak on further perspective until H&S will be completed. Why? Because, if market will not confirm our suggestion and turn down - another pattern could be formed here - 3-Drive "buy". I only think about it because daily butterfly is 1.27 but not 1.618. And if you will carefully look at weekly chart - you'll see that weekly butterfly target also has not been quite reached.
4-hour
Thus, based on our conclusions we could prepare short-term plan on coming week. The major task here is to catch the type of the pattern. What will it be - H&S, 3-Drive, or what?
Take a look at the chart:
AB=CD target also will be WPR1. Market has closed the Gap. The most important thing is that GBP has exceeded 0.618 AB-CD target already and CD leg is faster than AB. It means that downward retracement here should be very small and major reason for it is daily overbought only. Deep retracement here is unnatural.
Hence, deep retracement will tell that we probably will get 3-Drive or something else but not H&S.
This chart shows what particular levels we expect to get. They should be either nearest 3/8 support, or at least K-support, but not lower. K-support will be very strong, since it is accompanied by WPP and gap. Breaking below it will tell us that something is wrong with H&S pattern:
Conclusion:
Recent action barely impacts long-term perspectives for GBP. Mostly it stands in relation to daily and intraday picture and is tactical. That's why our task here is to get answer on potential depth of upside retracement and what shape it will take. Right now we suggest either H&S or 3-Drive depending on the shape of 4-hour chart.
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.
