Momentum Gathering for GBP/USD as Breakout Eyed Above 1.6260, 1.6355

Talking Points:
- UK GDP came in line with expectations at +0.8% (q/q) and +1.5% (y/y).
- Short covering rally in British Pound – every other major suffers.
- Implications for GBPUSD breakout are of high significance.

A scan of this morning’s best and worst performers via the Strong/Weak app shows that the British Pound is having an incredibly strong day, netting nearly +1000-pips cumulatively against the major currencies covered by DailyFX Research. The majority of these gains have occurred during the European session, as traders continued their rotation away from the commodity currencies (which began last Thursday) and into the European growth currencies (with price action the past three days, including today, confirming this trend).

Market participants may have been waiting for confirmation of the UK’s growth resiliency in the 3Q, as today’s figures have spurred a significant leg higher in the British Pound across the board. Notably, the GBPJPY continues to make headway after clearing the 2009 high of 163.05/15 last week.

Further gains may be difficult to come by over the next few days given thinner holiday trading conditions, but the pair is on track towards a significant Fibonacci level: the 38.2% retracement of the 2007 high to 2011 low at 168.17

TECHNICAL ANALYSIS – CHART OF THE DAY
GBPUSD Weekly Chart: January 2009 to Present

The more significant price action may be occurring in the GBPUSD, which broke above its two-month sideways range top at $1.6260:

- The range, from 1.5880 to 1.6260, has governed price since the second week of September.

- While there was potential for a Double Top, it now appears that a bullish Bull Flag has been forming with respect to the July low.

- The measured move for the GBPUSD on a weekly close above 1.6260 would call for a rally into 1.6745/50, the 61.8% extension of the flag coinciding with the July 2011 highs.

- Confirmation of the upswing will be achieved with (ideally) the month of November closing above 1.6300/55, the yearly high set on the first trading day of 2013 and the descending TL off of the 2009 and 2011 highs.

Read More

GBPUSD Range-Bound Conditions Continue

Trading Setups / Chart in Focus:

GBPUSD – Sterling/dollar stuck in trading range

The GBPUSD is still stuck in a trading range between about 1.5900 – 1.6260. Until we break outside of this range one way or the other, or get a price action signal from one of the boundaries of the range, there’s not much to do. Price has shown strength this week off 1.5900 support and could challenge 1.6260 resistance again before moving lower.

Read More

Dollar Suffers First Two-Day Drop Since Debt Ceiling Standoff Ends

Dollar Suffers First Two-Day Drop Since Debt Ceiling Standoff Ends

We are a day away from the release of the 3Q US GDP release and two from the October NFPs – event risk that can materially alter FOMC taper forecasts and thereby the US dollar’s bearings. In the lead up, however, a lack of conviction and lingering volatility can create unusual trading conditions. The 0.1 percent slip from the Dow Jones FXCM Dollar Index (ticker = USDollar) marked the first consecutive decline for the benchmark since the deficit standoff ended October 17 and ultimately marked the turning point for a bull wave. For event risk, the past session offered up the ISM’s service sector activity survey for October. A 55.4 reading from the benchmark bested expectations, but it was the jump in the employment component that perhaps generates a little more interest in the lead up to official labor stats due Friday. The next trend we see from the dollar, carry and broader financial markets is very likely to originate from risk trends that are touched off by stimulus expectations. That leverages the importance of Fed commentary as well. It seems there is concerted effort to prepare the market for the Taper.

Euro Drops after EU Downgrades Region’s Growth, Debt Outlook

When it rains, it pours. The euro has already been pummeled this past week by souring rate expectations after the disappointing inflation report for the Euro-area. As we head into the ECB decision that will verify or dispel the resurgence of dovish fears by euro traders, there is a natural inclination for the speculative tides to moderate. Yet, the EU’s (European Union) Fall economic forecasts would ensure the concern stretched a little further. According to the authority, the group that shares the euro would grow 1.1 percent versus the 1.2 percent projected in May. More concerning, the jobless rate was seen unchanged from the current record high. Furthermore, individual member countries were looking at greater problems. Greece was still looking at a 4.0 percent contraction this year (slightly better than May’s view), Spain’s deficit ratio was expected to balloon while Ireland and Portugal are seen having issues with accessing the market.

British Pound, Yield Forecast Rise on Upgraded Growth Forecast

In direct contrast to the unfavorable turn for the Eurozone’s growth outlook, the UK was given a big boost for its own prospects. According to the Fall forecasts, the United Kingdom will grow 1.3 percent this year (previously expected to be 0.6 percent) and 2.2 percent in 2014 (previously 1.7 percent). That is a substantial upgrade, but one that we have seen reinforced by more than a few items this week. The CBI’s own upgrade last week was a smaller magnitude, but sets a similar tone. Meanwhile, the Markit service sector activity survey for October printed the highest reading since 1997. All of this translates into increased fodder for rate speculators to doubt the BoE’s cautious forecasts for rate hikes to be delayed until 2016. Meanwhile, the swaps curve has not steepened materially in response to the recent run of data – though the 10-year gilt yield jumped 3.7 percent. Perhaps this represents fundamental room for the sterling to cover after Thursday’s BoE decision…

Read More

Weekly Forex Trading Forecast: Market Weighs Fed Taper, ECB Stimulus

US Dollar Forecast - US Dollar Ready for Further Gains, but What Stands in the Way?
What a difference a week makes. The US Dollar surged versus the Euro and other major forex counterparts and the Dow Jones FXCM Dollar Index posted its single-largest weekly gain in 5 months.

Euro Forecast – Euro Collapse Versus Dollar as Much an ECB Factor as Risk Trends
The Euro was the worst performer of the majors – and the drop it suffered was nothing short of spectacular.

Australian Dollar Forecast – Australian Dollar Sensitive to RBA Decision and Risk Trend
We’ve argued in favor of a significant Australian Dollar recovery since early August.

Gold Forecast - Gold Sell-off Intensifies as USD Firms- GDP, NFPs, in Focus
Gold prices plummeted more than 2.6% this week with the precious metal trading at $1313 ahead of the New York close on Friday.

Read More