EURGBP, Daily               

The first of my LONG positions on sterling hit Target 1 yesterday, it was only for a minute or two but EURGBP spiked down to 0.8900 for a net gain of 116 pips. At the same time the EURUSD and EURJPY SHORT positions came within a few pips of also hitting target, but have both since retraced. The question is how do I feel about this? To be honest the spike to 0.8900 exactly and so quickly could be regarded as fortunate and the closeness of the other two trades could be unlucky. The trick is to treat all three situations the SAME, all the thinking and analysis is done before the post is put together and the positions are triggered. The EUR trades, having come so close to target, could easily now, with some positive news from Mr Draghi’s press conference reverse and move in the opposite direction.  Again the trick is to trust your analysis, trade what you see and NEVER risk too much on one single trade.

UK retail sales disappointed in September, coming in flat m/m from a revised 0.0% reading in August. The median forecast had been for a 0.4% m/m rise. The y/y figure was +4.1%, below the median forecast for 4.8% and down from August’s 6.1% y/y reading. Overall, while sub-forecast the data still paints a picture of a buoyant consumer sector, which has held up much better than many had feared following the Breixt vote. But, darker clouds are appearing on the horizon, with inflation generally seen as likely to shoot to around 3.0% by the end of 2017, which will likely erode household prosperity, along with higher energy prices. Then there is Brexit uncertainty, which has seen many firms putting investment and recruitment “on hold,” according to the EY ITEM’s Autumn report, while BoE bank agents surveys have showed businesses expecting Brexit to have a negative effect on capital spending, hiring and turnover.

Chief Market Analyst

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EURGBP, Daily               

UK labour data was better than expected with September claimant rate rising 0.7k versus the expected 3.0k gain, while the claimant count rate was unchanged at 2.3% from an upwardly revised 2.3% rate in August. The lagging August unemployment rate was unchanged at 4.9%, while average household income in the three months to August came in with a 2.3% y/y rise in both the ex-bonus and with-bonus figures, perkier than the 2.1% median forecast in the case of the ex-bonus number. Inflation, which leapt to a 22-month high of 1.0% in September, is expected to soon exceed income growth and put a squeeze on many households.

GBP perked up on the release and hit eight day highs.  Following yesterday’s rebound which was extended on news that the UK government may have to give parliament a vote on the Brexit deal (which is something the government has been against, arguing that referendum is mandate enough). However, the vote was reported to be after negotiations have finished, by which time parliament will be powerless to stop Brexit. The issue is in the High Court now and will likely move to the Supreme Court. This is a shaping up to be a big constitutional issue, if not crisis, for Britain. Parliamentary involvement in drawing up the negotiating position for the EU exit is seen by markets as increasing the odds for a “soft” Brexit rather than the government-favoured “hard” Brexit. Cable logged an overnight low of 1.2256, but with this release it spiked pair north of 1.2300 again. Technically the pound’s downside momentum has waned significantly and we remain Long GBPUSD and Short EURGBP from yesterday’s analysis.   

EURGBP, Daily               

Sterling has perked up today following a stop-loss driven short squeeze in Asia ahead of UK inflation data today, the actual headline figured showed September cpi data at 1.0% beating expectations of 0.9%. Cable immediately rallied to 1.2273 (also its Asian session high) on expectation that higher inflation would make the possibility of an interest rate cut next month less likely, before settling back to 1.2245.

While the pound remains comfortably above the flash-crash lows of October 6, it is still lower by an average of about 18% against the G3 currencies since the Brexit vote. Downside momentum may abate as speculative accounts are running a record net short position in the pound (as interpolated by CFTC futures data), while the currency’s losses are already near historical extremes for sterling bear markets. But Brexit-related uncertainties remain a concern. The Autumn report from the independent economic forecast group ITEM, released yesterday, found that “many firms have put investment and recruitment on hold,” and while detailing various post-EU opportunities, forecast that a “WTO-based Brexit” would likely “take about 4% off Britain’s GDP by 2030. The UK Treasury’s recently leaked estimates regarding the coast of leaving the EU and switching to WTO rules was a loss of GDP of between 5.4% and 9.5% after 15 years.

Along with a possible SHORT position in EURJPY yesterday the EURGBP looks to be rolling over too in the short term down to the 0.8900 area (Target 1) from an entry at 0.9016. The tweezer top last week has been followed by some consolidation around the 0.9000-9050 level.  MACD, RSI and the Parabolic SAR suggest a further move lower.  The 10 DMA is providing support around 0.8960 with the 20 DMA further down at 0.8810 and Target 2.

Thursday this week remains key for the EURO this week. With growth indicators suggesting ongoing momentum and inflation starting to move higher, the ECB clearly is reluctant to add even more stimulus to an already very expansionary policy. Still, in order to keep the current program on track and to allow for a follow up program even at reduced levels, the ECB has to address the issue of dwindling supply. After the central bank tasked committees with examining tweaks to the program Reuters sources suggest that first proposals may already be discussed at this week’s meeting, but it seems more likely that any changes will be announced in December, when the decision about QE, which currently is set to end in March next year, will also be on the agenda. So, the most likely scenario is an unchanged policy stance and a pretty uneventful press conference with the ECB repeating its calls on politicians to step up structural reforms in order to boost the Eurozone’s growth potential and help to bring up inflation.

Chief Market Analyst

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EURGBP, Daily              

The third of the GBP short positions that had been initiated earlier in the month also hit Target 2 yesterday (September 20).  The EURGBP LONG entry at 0.8460 from September 12 spiked to Target 2 (0.8624) yesterday as the woes continued for sterling.  These three trades have netted in excess of 770 pips.

Meanwhile, an interesting piece in the Wall Street Journal suggests what the Fed signals today will be more important than the headline policy decision. According to a WSJ report, especially in the summary of economic projections and the press conference. The WSJ takes a look at 5 areas specifically: 1) A December Signal? 2) The Path Forward? 3) What’s the Risk? 4) Where’s Full Employment? and 5) Dissents? These are mostly self-explanatory, but highlight whether Yellen and Co. will give a more concrete signal about December, how they will characterize the rate path (dots), if they reassess the balance of risk, how they define full employment, wage trends and explain low inflation, and will they keep everyone on board in doing so? This is a good framework for considering the aftermath of the decision.

The USD currently trades at EURUSD 1.1142, USDJPY 100.76 and GBPUSD 1.2960 before the announcement and the following press conference.

Chief Market Analyst

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EURGBP, Daily              

On Monday (September 12^th) I wrote “The EURGBP created a Hammer candle low on Tuesday (September 6) at 0.8332 from the recent high (August 12) at 0.8723. Two strong up days last week, through the 23.6 Fibonacci level and a touch of the 50 DMA and 38.2 Fib level spiked my interest on Friday.  A close above the 0.8360 level on the Daily candle would generate a LONG position from here.  Target 1 would be 0.8540 and Target 2 0.8624”

The trade hit Target 1 yesterday (September 14) for an 80 pip gain; this was the third of the three SHORT GBP positions to complete this week for a net gain of 375 pips.

The BOE,as widely anticipated made no change. Sterling is down by an average 0.3% on the day versus the G3 currencies, although off intraday lows. Despite the less pessimistic tone of the MPC minutes relative to August, policymakers stuck to forecasts for economic slowdown. The minutes noted that “a majority of members expect to support a further cut … at one of the MPC’s forthcoming meetings during the course of this year” — if, that is, the outlook at the November forecast round “is judged to be broadly consistent” with the August Inflation Report projections. The BoE are likely to remain on hold into 2017, seeing some sustainability in the recent economic revival and with the MPC likely to wait for the detailing of expected fiscal stimulus measures at the government’s mid-government budget review on November 23. Further out, there is risk of further easing measures, anticipating that the eventual commencement of exit negotiations with the EU will sharpen concerns about the near- to medium-term success of project Brexit.

Janne Muta

Chief Market Analyst

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EURGBP, H4            

Final Eurozone manufacturing PMI was unexpectedly revised higher, slightly, to a reading of 52.0 versus the preliminary estimate of 51.9. This is down form 52.8 in June, indicating an abatement in the pace of expansion in the sector. Weakness in France and in peripheral economies weighed on the pan-region reading, offsetting a rise in activity in Germany and some of the smaller northern European member nations. The lop-sidedness was strong, with France showing a sub-50.0 contractionary reading of 48.6, although this was a four-month high and a rise from 48.3 in June. Greece’s reading was 48.6, while at the other end of the spectrum; Germany’s was 53.8, which is the lowest reading in two months.

Meanwhile, across the English Channel in post Brexit UK; UK final manufacturing PMI for July unexpectedly revised lower, to 48.2 from the preliminary estimate for 49.1. This follows 52.1 in June, with the deterioration blamed squarely on disrupting uncertainties thrown up the June-23 to exit the EU. The preliminary estimate comprised 80% of the survey’s responses, and the big revision suggests that the first month after the Brexit vote was even worse than previously thought. The final composite PMI will be released on Wednesday alongside the final services PMI reading. The flash composite PMI dove to 47.7, consistent with Q3 GDP of -0.4%. Sterling took a clobber on the data today. BoE MPC member Weale, who is by reputation a relative hawk on the policy-setting Committee, suggested last week that the dismal preliminary PMI data had convinced him that the policy loosening would be justified.

EURGBP rallied to 0.8470 on the news release and the GBPUSD was as low as 1.3171, before recovering to 1.3180.

We remain in SHORT positions in Cable (from 1.3450 July 14^th) and GBPJPY (from 138.77 July 27^th).

Janne Muta

Chief Market Analyst

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EURGBP, H4            

UK June construction PMI dove to 46.0, firmly and unexpectedly signalling that the sector is in contraction. This compares to the 51. 2 reading of May and the median forecast for a much more modest dip to 50.7. The 46.0 reading is the lowest level this series has seen since June 2009. Incoming new work fell by its steepest pace since December 2012. The survey found there has been a steep drop in residential building and the first decline in commercial work for the first time since May 2013. The survey is almost entirely a snapshot of conditions before the June 23 referendum on EU membership, and reflects caution in the sector ahead of the vote. Given the vote to leave and consequent political turmoil and uncertain economic future, the construction sector is likely to remain in decline over the coming months. The manufacturing PMI figure for June (also a pre-Brext vote snapshot), painted a much better picture, however, and focus will now be on the PMI survey of the big service sector, released tomorrow.

“Widespread delays to investment decisions and housing market jitters saw the UK construction sector experience its worst month for seven years in June. Construction firms are at the sharp end of domestic economic uncertainty and jolts to investor sentiment, so trading conditions were always going to be challenging in the run-up to the EU referendum. However, the extent and speed of the downturn in the face of political and economic uncertainty is a clear warning flag for the wider post Brexit economic outlook.”

GBPUSD fell below 1.3250 having been as high as 1.3296 earlier and EURGBP grinds higher to 0.8380.

Janne Muta

Chief Market Analyst

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EURGBP, Daily

I wrote yesterday that EUR had rallied strongly against USD and GBP after the stunningly low employment numbers from the US on Friday. I mentioned that as a result EURGBP moved to levels that might not be sustainable. Technical picture was also deteriorating with EURUSD struggling at 1.1355 resistance and EURGBP trading near levels that turned it lower in the beginning of May. Also, the 4h candle was about to create a bearish shooting star candle. Based on these factors I took a view that the price is probably turning lower. EURGBP dropped eventually as GBP rallied on the back of some trading algorithms gone haywire and the pair hit my Target 1 at 0.7776 – 0.7800. According to the method I teach in the webinars gained approximately 4:1 reward to risk was gained.

The pair has now rallied strongly since hitting my first target and is currently reacting lower from an area below a minor resistance level at 0.7834. It is not unusual to see a second leg down after an initial price move lower in volatile market conditions. This move could take the price near to the levels it found support earlier today. The 0.50 Fibonacci retracement level (drawn from the May low to the latest high) is near a 0.7754 support that could prove the be a challenge to the bears if the price moves to these levels. In the daily chart we have bearish pin bar from yesterday’s trading which supports the idea of price moving lower first before it can recover. I would like to meet you in the free webinars that we run on weekly basis. We all should take time to learn more about trading and make sure we know what to do before committing serious money to it. If you would like to become better and more confident trader, feel free to join us! I look forward to meeting you there.

Janne Muta

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

EURGBP, 60 min

EUR rallied strongly against USD and GBP after the stunningly low employment numbers from the US. This took EURGBP to levels that might not be sustainable. While EURUSD is struggling with 1.1355 resistance EURGBP is trading near levels that turned it lower in the beginning of May. The resistance area between 0.7894 and 0.7920 turned out to be a challenge for the bulls after the pair had moved higher by more than 3% in 5 days. Daily Stochastics oscillator is about to give a bearish signal and price itself is rolling over in the 60 min time frame. If the current 4h candle closes (< 60 min to go) below 0.7885 a bearish shooting star candle is created. This adds to my view that price is probably turning lower.

I’m looking for sell signals inside my Sell Area between 0.7870 and 0.7900 while my Target 1 for the this trade is at 0.7776 – 0.7800 bracket and my Target 2 at 0.7690 – 0.7720. If you don’t know how to trade I strongly advise you to join our educational webinars before attempting to utilize our analysis or trade on your own.

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EURGBP,  H1     

German ZEW sentiment survey fell to a 6.4 reading from 11.2 in the previous month. The median had been for a rise to 11.7. The rekindling of Fed rate hike expectations as soon as next month, along with Brexit concerns, with the UK’s vote on EU membership now only a month away, have weighed on the index. The current situations component painted a starkly different picture, leaping to a 53.1 reading from 47.7 in the previous month. ZEW noted that despite the strong growth of the Germany economy, “uncertainties regarding developments such as a possible Brexit currently inhibit a more optimistic outlook.” German Q1 GDP, was confirmed at +0.7% q/q,. A Brexit poll by ORB showed a jump in those favouring “Remain” to 55% versus 42% for “Leave,” which has propelled sterling back above 1.4500 against the dollar. UK bookmaker Ladbrokes is now giving 81% odds for the Brits to vote for remaining in the EU at the Jun-23 referendum, up from 79% yesterday and 71% that were being given at the beginning of last week.

I wrote last week (May 19) “The EURGBP looks to have a downside Target 1 0.7530 – 0.7500 and the 200 DMA, further down 0.7420 is a Weekly support and 61.8 FIB, and  finally  0.7330 is the 2016 low.  The big move in the pair yesterday was three times the normal daily range. It broke through the March and February lows around 0.7720-0.7700 and closed exactly on the 38.2 Fibonacci level and outside the lower Bollinger band.  Following such a large move my entry would be triggered on a retracement to the 0.7720 – 0.7770 area”.  So we are now SHORT EURGBP.

Janne Muta

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.