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.