It's Good Again!

Latest: US consumer sentiment down more than expected

Just arrived back to my trading desk after a full-day meeting. And the story right now:

The dollar slipped back after a raft of disappointing US economic data raised questions about how many more interest rate hikes the US Federal Reserve will deliver in the coming months.

[Continue reading the story]

The news has consequently put my sterling position (which I have commented yesterday) into a massive 139 points profit. Profit booked and hence I am in relief that I got both the fundamentals and technical right by foreseeing a stronger pound (although it's the dollar than weakens) and observing a breakout on the daily chart.

Fundamental Still Strong, Technical Weak

What has actually changed for the sterling to start the week under selling pressure? The sterling was able to hold its ground last week due to a better that expected GDP numbers and a 8-1 vote not to cut rates by the MPC.

Fundamentally, nothing has changed much. It appears that traders will be waiting for the PMI Manufacturing and Services reports coming out this week to shed further light on the underlying economic strength.

Technically, the unexpected move last Friday has largely jeopardised the bull run which put the sterling as high as 1.7554. Present technical charts on both H1 and H4 automatically warn about the trend reversal. If the sterling could not hold above the important 1.7400 level at closing today or tomorrow, we could have a false bull breakout on the daily chart.

Personally, I am quite positive to buy into weakness as the important 1.7400 was being probed. In fact, I am already long again on the sterling at 1.7403, hoping that the real economics will eventually take over.

GOTCHA !

Closed sterling position at 1.7490, a few more points than anticipated. The risk on that trade is moderate but within my trading threshold: -29 drawdown vs. + 86 profit.

Long Sterling Position

Based on my last view on the sterling outlook, I have therefore entered a long position at 1.7403 with a price target of 1.7480 in mind.

Today's Sentiments

Quotes via Bloomberg:

"The economic figures will justify two more rate increases by the Fed."
"The interest-rate differential story still favors the dollar."

On the other hand,

"Trichet suggests that a hike from the ECB on March 2 is all but a done deal".
"We'd find it unusual if the euro did not receive some support into March 2."
"The euro will strengthen to $1.2150 in the next one to two weeks."

At the moment,

I am dollar bearish and am waiting for the opportunity to buy into euro positions once the breakout in the daily chart has been confirmed. A successful close above 1.1950 for the daily price before the end of this week will be a good indicator for the upside movement.

Sterling Outlook Improved

Sterling gained ground against the US dollar today and was supported at the 1.7405 level due to a much improved economy outlook.

Sterling held steady on Monday after the previous week's losses, supported by news of a strong rise in British house prices and on upbeat comments on the economy from Bank of England policymaker Kate Barker.

Wednesday's MPC minutes could prove more upbeat than some expect, potentially helping sterling put in a better performance this week.

[Read Reuters]

My thoughts: The improved outlook was indeed confirmed by the H4 chart with current support line at 1.7395 level. I am looking to long sterling again around the support level.

New Trade Entered

Sterling has fallen off from a recent high of 1.7920 reached two weeks ago, now trading at only 1.7420. I just entered a long position at 1.7424 this morning after my H4 chart analysis. The current support should hold at 1.7380-1.7400. Look for a price push-up before the week ends.


Updated (Feb 10): Position closed at 1.7470 for a 46-pips profit.

Sterling Enters Consolidation Phase

Yesterday I closed my long euro position when it hit above the 1.1820 level. The support line currently holds at 1.1750 and only at this level, I will be looking to long again.

In the mean time, Sterling has dramatically rallied from 2-year lows of 1.7049 to trade at 1.7240 at this point, hitting earlier highs of 1.7338. Cable is in price consolidation mode and should dip back into 1.7170 - 1.7200 region. A sustained closing price above 1.7205 level for this week should set off a further rally to 1.7400.

Buy Eur/Usd at Dip

In a reaction to FOMC statement, Euro broke short-term bearish trend to trade as high as 1.1855 rallying from a low of 1.1685 and it is now settling at just below 1.1800 level. The market has so far been kind to me over the last two sessions as I managed to execute some good trades at price pullback. I am going to reenter (long) only if I see the price drops below 1.1760. Else do nothing and don't be tempted. The market always get you to think in the wrong direction.

Related entries:
Trade of the day: Euro

The Story of Yen

Japanese Yen continues to fell against USD dollar to a 2 year low. While the Yen slips lower and the Nikkei climbs higher, it seems that senior policy-makers in Japan are sending mixed messages related to monetary policy. How to make sense of the current situation?

Adam recounts:

Economists have turned to data on international capital flows in attempting to explain the weakness of Asian currencies. They believe rising US interest rates combined with the perceived stability of US capital markets are driving risk-averse investors, especially those in Asia, to shift capital into the US, which has generated massive demand for USD.

It is difficult to think of something that could stop the current trend of yen weakness and the Japanese officials aren't concerned about the fall in yen. There is a high possibility for traders to chase the dollar even higher as there is no clear sign on the charts for a correction soon in the usd dollar's bull run.