Sive Morten
Special Consultant to the FPA
- Messages
- 18,644
Fundamentals
(Reuters) Sterling hit an 11-day low on Friday, as investors worried that a referendum on whether Britain should stay in the European Union was still too close to call, with seven weeks to go.
Regional and local elections, in which Britain's main opposition Labour Party lost less ground than expected and was leading the race for London's mayor, had no noticeable impact on the pound.
Instead, the primary medium-term focus for sterling remains the June 23 referendum on Britain's membership of the European Union, with most polls showing the "In" and "Out" campaigns neck-and-neck.
Sterling had hit a day's high of $1.4546 after a weaker-than-expected U.S. jobs report showed just 160,000 jobs were added in April, well short of the 202,000 expected. But it later retreated to $1.4422, its weakest since April 25 and down 0.4 percent on the day.
Average hourly earnings were the only bright spot in the employment report, rising 8 cents or 0.3 percent last month.
"The earnings data counterbalanced the jobs number, which is why the dollar rebounded," said RBC Capital Markets currency strategist Adam Cole. "I wouldn't want to go long sterling into the weekend ... The polls need to start improving from here, from sterling's perspective."
Despite most polls being close, bookmakers have consistently put the "In" campaign well ahead. Betting website Betfair shows the chances of leaving at around 31 percent.
Emboldened by those odds, some speculators are betting the pound could soar as much as 20 cents from current levels after next month's referendum if Britons vote to stay in.
Most economists reckon leaving the EU would deal a blow to the British economy, with a hefty current account deficit - 7 percent of GDP in the last quarter of last year - leaving it vulnerable to any pull-back in investment flows. Any news that makes a Brexit more likely, therefore, knocks sterling.
For the week, the pound is down 1.2 percent versus the greenback, on track for its first weekly drop in four, having also been hurt by weak purchasing managers' index (PMI) surveys that showed Britain's economy slowed in April.
"The economy could well be on a shaky road ahead of (the)Brexit (vote) in June," said Western Union's UK head of corporate treasury sales, Tobias Davis.
Do not blame it on Brexit – yet
by Fathom Consulting
In our latest quarterly forecast we argued that the UK had been growing at an unsustainable pace for the past few years and that some slowdown was inevitable, with or without the EU referendum. Last week’s labour market and retail sales data were both weak, and commentators were quick to lay the blame at the door of the upcoming EU referendum. But are we really seeing anything more than the inevitable slowdown that must follow several years of above trend growth?
Set against the backdrop of near-stagnant productivity, it is clear to us that the UK economy has been expanding at an unsustainable pace for a number of years. That recent rates of growth could not last is evident too in the headline unemployment rate, which has fallen dramatically; the record current account deficit; and the household saving rate, which has plumbed new depths. Some slowdown was inevitable, with or without the referendum.
As a rule of thumb, retail sales data should be taken with a large pinch of salt – they are notoriously erratic, and often subject to large revisions. But if we smooth through some of the volatility, it is clear that retail sales have been slowing since the beginning of last year. Growth rates have, in fact, broadly stabilised since the beginning of this year. Labour market surveys suggest that employment intentions have also been weakening for some time.
Consequently, we would struggle to conclude that, to date, the apparent slowdown in the labour market, and in consumer spending, is anything other than the sort of slowdown that one ought to expect after several years of above trend growth. If the UK votes to ‘remain’ in the European Union then we expect growth of 1.8% this year and 1.5% next year. If the UK does vote to ‘leave’ on 23 June, the long period of uncertainty that would follow means that growth is likely to turn out weaker, and perhaps by some margin.
Brexit – Project Fear is Working
by Amareos
With less than 10 weeks to go the EU referendum debate in the UK continues to hot up. The UK government is, for the first time in a generation, putting the EU question directly to the electorate. This should be viewed as a positive move and demonstrates democracy in action. However, far from there being a reasoned debate on the pros and cons of continued EU membership, to-date it has become an exercise in scaremongering. Both sides are using scare tactics to fuel emotions which they feel will give them an advantage in the debate. Fear is the most prominent sentiment used by both parties. Playing on emotions rather than producing the “facts” appears to be the main tactic used so far to win over the voting public.
Rather than putting forward arguments in favour of staying in the EU for the most part the “In” camp has been running a negative campaign focussed on the costs associated with Brexit. Indeed, just this week Chancellor Osborne, citing a 200-page HM Treasury report, warned that leaving the EU would cost households around £4,300 per year because of a less interconnected UK economy outside the union. Despite BoE governor Carney describing the Treasury report as “sound”, the government’s figures have come in for a great deal of criticism, and not just from those campaigning for Brexit[1].
The impact of Brexit, especially on the nature of trade relations with the rest of the EU, is inherently unpredictable because of the lack of precedent. Even though the EU treaty contains a clause for leaving (Article 50) it has never been used[2]. This means putting a precise figure on the cost of Brexit is extremely difficult.
However, the absence of a counterfactual is also a problem for the “Out” camp, because it is impossible for “Outers” to refute by example the Treasury figures, or to seriously challenge the underlying assumptions in the report[3]. Moreover, failure to provide a credible alternative narrative which challenges such reports and supports their own view is leaving (no pun intended) the “Out” camp with a credibility problem in the eyes of the electorate. It raises questions about belief and trust in their message, sentiments, which could have a significant bearing on the outcome of the referendum.
Surprisingly, despite all the noise generated by the debate, aggregated opinion polls still show neither side gaining a decisive lead (see chart below). Moreover, the gap in the vote share between “In” and “Out” is significantly lower than the percentage of undecided voters, which some polls suggest has actually risen of late to almost 17 percentage points[4].
Exhibit 1: Referendum Vote Intention Poll of Polls
Source: www.WhatUKThinks.org/EU run by NatCen Social Research
Based solely on the opinion poll results it would appear that the outcome of the June 23rd referendum is, to borrow a much-overused phrase, “too close to call”. However, the sentiment indicators we track at Amareos suggest the vote may not be quite as close as the polls indicate.
Readings of Fear – both in relation to GBP and the broader UK economy – have risen sharply over recent weeks (see chart below[5]). This suggests that the “In” campaign (Project Fear as some have renamed it – correctly it would appear) has been very successful in triggering a strong negative emotional response in people.
Exhibit 2: The Brexit Effect
Source: www.amareos.com
Such extremely high Fear readings, reflective of worries about the negative economic consequences of Brexit, serves to reaffirm our earlier expressed belief that “when push comes to shove the [UK] electorate will vote in favour of continued EU membership” because of the “power of the status quo” [6]. After all, UK voters are hardly likely to trigger an outcome they are already displaying such a high degree of concern about if it can be avoided altogether simply by ticking a different box on the ballot paper[7].
Of course, this is the state of play at present. The situation is fluid and 10 weeks of campaigning remain. But the Amareos sentiment data suggest that if the “Out” camp wants to win on June 23rd they need to begin to address the fears stoked by the “In” camp, and soon[8].
*Sentiment Analytics are based on Thomson Reuters MarketPsych indices.
The chart in the piece includes the TRMI Fear index for the UK economy and TRMI Fear index for GBP.
[1] See: http://blogs.spectator.co.uk/2016/04/the-deceptions-behind-george-osbornes-brexit-report.
[2] The closest example is when Greenland split from Denmark and voted to leave the EEC in the 1985 referendum – hardly a useful comparison.
[3] The HM Treasury report makes clear the assumption as to the nature of post-exit trading relations is a critical component of their analysis.
[4] See: http://uk.reuters.com/article/uk-britain-europe-poll-comres-idUKKCN0XE17D
[5] The Fear indicator is calibrated such that it lies within the range 0-100. Hence, the latest readings imply Fear in the UK is close to its highest possible level.
[6] See: https://amareos.com/blog/2016/02/04/brexit-camerons-bet/
[7] Think turkeys voting for Christmas!
[8] Highlighting the downside for the UK economy of maintaining the status quo is another plausible strategy for the “Out” camp.
COT Report
Bearish bets on the U.S. dollar hit their largest since Feb. 5, 2013 this week, boosted by expectations the U.S. Federal Reserve will hold off on raising interest rates further this year, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The value of the dollar's net short positions rose to $6.46 billion in the week ended May 3, from short contracts valued at $4.19 billion in the previous week. Speculators were short the dollar for a third straight week. Prior to the current three-week bearish turn, speculators had been long since May 2014.
Speaking on GBP sentiment on a retracement up speculative net short position is started to decrease. Open interest also has dropped significantly as Sterling has turned to upside retracement. In last 3 weeks we see that speculative short position is dropping while open interesting shows shy growth. It means that investors have re-opened a part of long positions that were closed previously. Thus situation around GBP and Brexit is so nervous that even hit COT data and shows that investors also jump from one opinion to another.
Still it seems that these longs were mostly short-term. Take a look at jump in Open interest and deep pit in speculative shorts - this was a moment of big amount of long opening. As market has started move higher - open interest has started to decrease while net short positions have started to repair. THus, it means that recently opened longs gradually were closed.
Technicals
Monthly
Recently market starts to show some signs of weakness, that could become a reason for downward continuation. Although we prefer to get more bearish CFTC data, but currently we see contraction of long positions and may be this tendency will continue slowly till June. At least, Ireland voting last year has triggered outstanding drop in open interest of GBP. Net short-position also stands not at a record lows, thus some more decrease is possible. That's why, although fundamental picture does not look totally cloudless, but it doesn't confront to technical picture of possible GBP decrease.
As market recent time coiling around YPS1 - this barely made any impact on monthly chart. 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. Currently sterling is flirting around YPS1 and 1.40 lows.
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."
Today, guys, we give some interesting observations on different time frames that could become a clue to undertsanding of GBP perspectives in nearest futures.
Trend is bearish here, but GBP is not at oversold. Unfortunately we've not got bearish grabber here, at least to date. On monthly chart we have two important patterns.
First one is uncompleted yet small AB-CD down. It amazingly agrees with huge AB-CD pattern, that has 0.618 target @ 1.3088 area. Since this is just minor 0.618 extension of huge pattern - sooner or later but market should hit it with high probability.
Second important moment here - GBP already has broken through all important supports - YPP, major 5/8 Fib support, natural supports of some former lows. Now it stands in an area of YPP, but upside reaction looks mild.
This leads us to conclusion that all time lows around 1.35 probably will not survive, despite how long they will hold price. Mostly because AB-CD targets stand right below it. If even market will not drop further - it will wash out lows. There is really high probability for this.
Thus, monthly chart mostly still shows existing of bearish sentiment. At least nothing crucial has happened here yet that could give a sign of tendency breaking.
Weekly
Weekly chart has most important information for us, say, "the core" of our context. Currently trend is bullish here my MACD, but this is not the major issue right now.
Current upward action has started from bullish engulfing pattern and not it has reached the target. This upside bounce has started almost from 1.618 extension target of BC leg of our AB-CD pattern. It is interesting that if we will measure 1.618 of most recent upside action - we will get precisely AB=CD target around 1.33 area. So could we get here something line 1.618 3-Drive "buy" pattern?
Another important moment that market mostly has formed bearish reversal week right at weekly OB. Last week market has created new high, then reversed down and closed almost below the low of week before. Not quite, but very close. Although this is not pure reversal week, but overall action is definitely bearish. This candle could mean that hardly we will get new bull trend, some upside reversal of global tendency on GBP. Mostly it means that upside retracement is over and GBP has solid chances to return back to long-term bearish trend
Daily
As on weekly chart "almost' have got reversal week - on daily we do have reversal session right in the point of completion of H&S target. I mean AB=CD that is based on the head and right shoulder. Trend has turned bearish on daily chart.
Also recent H&S upward action just has re-tested former lows and its top reminds W&R of previous top. Following overall situation on monthly/weekly charts it is logical to suggest that our journey with H&S mostly is over. But theoretically until market stands above 1.40 area it keeps chances to continue upward action to next, 1.618 target of AB-CD pattern. Thus, to get final absolute confirmation of bearish continuation we need to get price drop below 1.40 area.
Thus, GBP mostly gives chances to trade on intraday charts, at least until daily traders will wait for final confirmation before taking short positions.
At first glance it seems too long way to confirmation, but in a scale of weekly chart with target around 1.34 - 300pips is really "small" distance.
Thus, reaction on weekly reversal week and OB probably will lead to deep retracement. That's why chances are blur that GBP will return back to uspide action.
4-hour
This time frame gives us important information about strong support cluster at 1.4260-1.44 area. This is K-support that also includes H&S neckline, MPP and WPS1. Thus GBP probably will show upside bounce out from it.
At the same time, since Cable is overbought on weekly chart hardly it will finish downward action here. More probable that it will take shape of some AB=CD down. And on a way up price could, for example, just test WPP...
Second - it seems interesting 1.42 level, because this is major 5/8 Fib support and MPS1. If GBP will drop below it - this will be early confirmation of long bearish trend continuation.
Conclusion:
Recent action barely impacts long-term perspectives for GBP. Mostly it stands in relation to daily and intraday picture and is tactical. So, we still keep bearish our long-term view.
In short-term perspective we expect downward action progress. First, we will be watching for price reaching of 1.4350 area, then upside bounce, may be to WPP and then CD leg down. This is our expectation on coming week. 1.42 level will become a red line among trends. If market will drop below it - this will significantly increase chances on further downward action.
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.
(Reuters) Sterling hit an 11-day low on Friday, as investors worried that a referendum on whether Britain should stay in the European Union was still too close to call, with seven weeks to go.
Regional and local elections, in which Britain's main opposition Labour Party lost less ground than expected and was leading the race for London's mayor, had no noticeable impact on the pound.
Instead, the primary medium-term focus for sterling remains the June 23 referendum on Britain's membership of the European Union, with most polls showing the "In" and "Out" campaigns neck-and-neck.
Sterling had hit a day's high of $1.4546 after a weaker-than-expected U.S. jobs report showed just 160,000 jobs were added in April, well short of the 202,000 expected. But it later retreated to $1.4422, its weakest since April 25 and down 0.4 percent on the day.
Average hourly earnings were the only bright spot in the employment report, rising 8 cents or 0.3 percent last month.
"The earnings data counterbalanced the jobs number, which is why the dollar rebounded," said RBC Capital Markets currency strategist Adam Cole. "I wouldn't want to go long sterling into the weekend ... The polls need to start improving from here, from sterling's perspective."
Despite most polls being close, bookmakers have consistently put the "In" campaign well ahead. Betting website Betfair shows the chances of leaving at around 31 percent.
Emboldened by those odds, some speculators are betting the pound could soar as much as 20 cents from current levels after next month's referendum if Britons vote to stay in.
Most economists reckon leaving the EU would deal a blow to the British economy, with a hefty current account deficit - 7 percent of GDP in the last quarter of last year - leaving it vulnerable to any pull-back in investment flows. Any news that makes a Brexit more likely, therefore, knocks sterling.
For the week, the pound is down 1.2 percent versus the greenback, on track for its first weekly drop in four, having also been hurt by weak purchasing managers' index (PMI) surveys that showed Britain's economy slowed in April.
"The economy could well be on a shaky road ahead of (the)Brexit (vote) in June," said Western Union's UK head of corporate treasury sales, Tobias Davis.
Do not blame it on Brexit – yet
by Fathom Consulting
In our latest quarterly forecast we argued that the UK had been growing at an unsustainable pace for the past few years and that some slowdown was inevitable, with or without the EU referendum. Last week’s labour market and retail sales data were both weak, and commentators were quick to lay the blame at the door of the upcoming EU referendum. But are we really seeing anything more than the inevitable slowdown that must follow several years of above trend growth?
Set against the backdrop of near-stagnant productivity, it is clear to us that the UK economy has been expanding at an unsustainable pace for a number of years. That recent rates of growth could not last is evident too in the headline unemployment rate, which has fallen dramatically; the record current account deficit; and the household saving rate, which has plumbed new depths. Some slowdown was inevitable, with or without the referendum.
As a rule of thumb, retail sales data should be taken with a large pinch of salt – they are notoriously erratic, and often subject to large revisions. But if we smooth through some of the volatility, it is clear that retail sales have been slowing since the beginning of last year. Growth rates have, in fact, broadly stabilised since the beginning of this year. Labour market surveys suggest that employment intentions have also been weakening for some time.
Consequently, we would struggle to conclude that, to date, the apparent slowdown in the labour market, and in consumer spending, is anything other than the sort of slowdown that one ought to expect after several years of above trend growth. If the UK votes to ‘remain’ in the European Union then we expect growth of 1.8% this year and 1.5% next year. If the UK does vote to ‘leave’ on 23 June, the long period of uncertainty that would follow means that growth is likely to turn out weaker, and perhaps by some margin.
Brexit – Project Fear is Working
by Amareos
With less than 10 weeks to go the EU referendum debate in the UK continues to hot up. The UK government is, for the first time in a generation, putting the EU question directly to the electorate. This should be viewed as a positive move and demonstrates democracy in action. However, far from there being a reasoned debate on the pros and cons of continued EU membership, to-date it has become an exercise in scaremongering. Both sides are using scare tactics to fuel emotions which they feel will give them an advantage in the debate. Fear is the most prominent sentiment used by both parties. Playing on emotions rather than producing the “facts” appears to be the main tactic used so far to win over the voting public.
Rather than putting forward arguments in favour of staying in the EU for the most part the “In” camp has been running a negative campaign focussed on the costs associated with Brexit. Indeed, just this week Chancellor Osborne, citing a 200-page HM Treasury report, warned that leaving the EU would cost households around £4,300 per year because of a less interconnected UK economy outside the union. Despite BoE governor Carney describing the Treasury report as “sound”, the government’s figures have come in for a great deal of criticism, and not just from those campaigning for Brexit[1].
The impact of Brexit, especially on the nature of trade relations with the rest of the EU, is inherently unpredictable because of the lack of precedent. Even though the EU treaty contains a clause for leaving (Article 50) it has never been used[2]. This means putting a precise figure on the cost of Brexit is extremely difficult.
However, the absence of a counterfactual is also a problem for the “Out” camp, because it is impossible for “Outers” to refute by example the Treasury figures, or to seriously challenge the underlying assumptions in the report[3]. Moreover, failure to provide a credible alternative narrative which challenges such reports and supports their own view is leaving (no pun intended) the “Out” camp with a credibility problem in the eyes of the electorate. It raises questions about belief and trust in their message, sentiments, which could have a significant bearing on the outcome of the referendum.
Surprisingly, despite all the noise generated by the debate, aggregated opinion polls still show neither side gaining a decisive lead (see chart below). Moreover, the gap in the vote share between “In” and “Out” is significantly lower than the percentage of undecided voters, which some polls suggest has actually risen of late to almost 17 percentage points[4].
Exhibit 1: Referendum Vote Intention Poll of Polls
Source: www.WhatUKThinks.org/EU run by NatCen Social Research
Based solely on the opinion poll results it would appear that the outcome of the June 23rd referendum is, to borrow a much-overused phrase, “too close to call”. However, the sentiment indicators we track at Amareos suggest the vote may not be quite as close as the polls indicate.
Readings of Fear – both in relation to GBP and the broader UK economy – have risen sharply over recent weeks (see chart below[5]). This suggests that the “In” campaign (Project Fear as some have renamed it – correctly it would appear) has been very successful in triggering a strong negative emotional response in people.
Exhibit 2: The Brexit Effect
Source: www.amareos.com
Such extremely high Fear readings, reflective of worries about the negative economic consequences of Brexit, serves to reaffirm our earlier expressed belief that “when push comes to shove the [UK] electorate will vote in favour of continued EU membership” because of the “power of the status quo” [6]. After all, UK voters are hardly likely to trigger an outcome they are already displaying such a high degree of concern about if it can be avoided altogether simply by ticking a different box on the ballot paper[7].
Of course, this is the state of play at present. The situation is fluid and 10 weeks of campaigning remain. But the Amareos sentiment data suggest that if the “Out” camp wants to win on June 23rd they need to begin to address the fears stoked by the “In” camp, and soon[8].
*Sentiment Analytics are based on Thomson Reuters MarketPsych indices.
The chart in the piece includes the TRMI Fear index for the UK economy and TRMI Fear index for GBP.
[1] See: http://blogs.spectator.co.uk/2016/04/the-deceptions-behind-george-osbornes-brexit-report.
[2] The closest example is when Greenland split from Denmark and voted to leave the EEC in the 1985 referendum – hardly a useful comparison.
[3] The HM Treasury report makes clear the assumption as to the nature of post-exit trading relations is a critical component of their analysis.
[4] See: http://uk.reuters.com/article/uk-britain-europe-poll-comres-idUKKCN0XE17D
[5] The Fear indicator is calibrated such that it lies within the range 0-100. Hence, the latest readings imply Fear in the UK is close to its highest possible level.
[6] See: https://amareos.com/blog/2016/02/04/brexit-camerons-bet/
[7] Think turkeys voting for Christmas!
[8] Highlighting the downside for the UK economy of maintaining the status quo is another plausible strategy for the “Out” camp.
COT Report
Bearish bets on the U.S. dollar hit their largest since Feb. 5, 2013 this week, boosted by expectations the U.S. Federal Reserve will hold off on raising interest rates further this year, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The value of the dollar's net short positions rose to $6.46 billion in the week ended May 3, from short contracts valued at $4.19 billion in the previous week. Speculators were short the dollar for a third straight week. Prior to the current three-week bearish turn, speculators had been long since May 2014.
Speaking on GBP sentiment on a retracement up speculative net short position is started to decrease. Open interest also has dropped significantly as Sterling has turned to upside retracement. In last 3 weeks we see that speculative short position is dropping while open interesting shows shy growth. It means that investors have re-opened a part of long positions that were closed previously. Thus situation around GBP and Brexit is so nervous that even hit COT data and shows that investors also jump from one opinion to another.
Still it seems that these longs were mostly short-term. Take a look at jump in Open interest and deep pit in speculative shorts - this was a moment of big amount of long opening. As market has started move higher - open interest has started to decrease while net short positions have started to repair. THus, it means that recently opened longs gradually were closed.
Technicals
Monthly
Recently market starts to show some signs of weakness, that could become a reason for downward continuation. Although we prefer to get more bearish CFTC data, but currently we see contraction of long positions and may be this tendency will continue slowly till June. At least, Ireland voting last year has triggered outstanding drop in open interest of GBP. Net short-position also stands not at a record lows, thus some more decrease is possible. That's why, although fundamental picture does not look totally cloudless, but it doesn't confront to technical picture of possible GBP decrease.
As market recent time coiling around YPS1 - this barely made any impact on monthly chart. 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. Currently sterling is flirting around YPS1 and 1.40 lows.
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."
Today, guys, we give some interesting observations on different time frames that could become a clue to undertsanding of GBP perspectives in nearest futures.
Trend is bearish here, but GBP is not at oversold. Unfortunately we've not got bearish grabber here, at least to date. On monthly chart we have two important patterns.
First one is uncompleted yet small AB-CD down. It amazingly agrees with huge AB-CD pattern, that has 0.618 target @ 1.3088 area. Since this is just minor 0.618 extension of huge pattern - sooner or later but market should hit it with high probability.
Second important moment here - GBP already has broken through all important supports - YPP, major 5/8 Fib support, natural supports of some former lows. Now it stands in an area of YPP, but upside reaction looks mild.
This leads us to conclusion that all time lows around 1.35 probably will not survive, despite how long they will hold price. Mostly because AB-CD targets stand right below it. If even market will not drop further - it will wash out lows. There is really high probability for this.
Thus, monthly chart mostly still shows existing of bearish sentiment. At least nothing crucial has happened here yet that could give a sign of tendency breaking.
Weekly
Weekly chart has most important information for us, say, "the core" of our context. Currently trend is bullish here my MACD, but this is not the major issue right now.
Current upward action has started from bullish engulfing pattern and not it has reached the target. This upside bounce has started almost from 1.618 extension target of BC leg of our AB-CD pattern. It is interesting that if we will measure 1.618 of most recent upside action - we will get precisely AB=CD target around 1.33 area. So could we get here something line 1.618 3-Drive "buy" pattern?
Another important moment that market mostly has formed bearish reversal week right at weekly OB. Last week market has created new high, then reversed down and closed almost below the low of week before. Not quite, but very close. Although this is not pure reversal week, but overall action is definitely bearish. This candle could mean that hardly we will get new bull trend, some upside reversal of global tendency on GBP. Mostly it means that upside retracement is over and GBP has solid chances to return back to long-term bearish trend
Daily
As on weekly chart "almost' have got reversal week - on daily we do have reversal session right in the point of completion of H&S target. I mean AB=CD that is based on the head and right shoulder. Trend has turned bearish on daily chart.
Also recent H&S upward action just has re-tested former lows and its top reminds W&R of previous top. Following overall situation on monthly/weekly charts it is logical to suggest that our journey with H&S mostly is over. But theoretically until market stands above 1.40 area it keeps chances to continue upward action to next, 1.618 target of AB-CD pattern. Thus, to get final absolute confirmation of bearish continuation we need to get price drop below 1.40 area.
Thus, GBP mostly gives chances to trade on intraday charts, at least until daily traders will wait for final confirmation before taking short positions.
At first glance it seems too long way to confirmation, but in a scale of weekly chart with target around 1.34 - 300pips is really "small" distance.
Thus, reaction on weekly reversal week and OB probably will lead to deep retracement. That's why chances are blur that GBP will return back to uspide action.
4-hour
This time frame gives us important information about strong support cluster at 1.4260-1.44 area. This is K-support that also includes H&S neckline, MPP and WPS1. Thus GBP probably will show upside bounce out from it.
At the same time, since Cable is overbought on weekly chart hardly it will finish downward action here. More probable that it will take shape of some AB=CD down. And on a way up price could, for example, just test WPP...
Second - it seems interesting 1.42 level, because this is major 5/8 Fib support and MPS1. If GBP will drop below it - this will be early confirmation of long bearish trend continuation.
Conclusion:
Recent action barely impacts long-term perspectives for GBP. Mostly it stands in relation to daily and intraday picture and is tactical. So, we still keep bearish our long-term view.
In short-term perspective we expect downward action progress. First, we will be watching for price reaching of 1.4350 area, then upside bounce, may be to WPP and then CD leg down. This is our expectation on coming week. 1.42 level will become a red line among trends. If market will drop below it - this will significantly increase chances on further downward action.
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.
