Analys från DailyFX
GBPJPY | GBPCAD
Talking Points:
- Remain GBP/JPY long because of central bank outlooks
- GBP/CAD also looks poised for further gains on monetary policy themes
- Both fundamental outlooks must be confirmed by technicals
As we open up 2014 trade, the single most important theme we’ll be watching for is divergences in the monetary policy outlook for the world’s largest central banks. One of my trades of the year heading into 2013 was the long side of GBPJPY, a trade which was predicated by both the technical breach of a multi-year long consolidation formation and a stronger recovery in the UK economy. Although the sterling struggled a bit early on against the greenback, versus the Japanese yen the pound was by far the strongest performer amongst the majors, with an advance of more than 15.5% ahead of the close of 2013 trade. Arguably among the least dovish (dare I say “hawkish”) central banks, the BoE looks poised to begin throttling back and possibly even ready to move on rates in 2014, as will be a theme for these setups.
GBPJPYWeekly
Chart created by Michael Boutros using Marketscope 2.0
As the BoE looks to begin ending the easing cycle, the BOJ remains committed to achieving its 2% inflation target by 2015, and as such, our bias remains unchanged from last year’s forecast. We continue favoring the long-side of GBPJPY for short yen exposure while above 147.50.
The breakout of the multiyear consolidation formation seen last year is still in focus, and although our broader bias remains weighted to the topside, the pair looks vulnerable as we close out the year just below key resistance. Look for a pullback early next year to offer long entries with a breach above immediate resistance at 168.12-170.40 targeting objectives at 184-188.27, 199.80 and 208.20. One of the more compelling technical factors is also the fact that momentum has now broken into overbought territory from sub-30 for the first time since 1996, when the pair made fresh 6 year highs before mounting the assault on the 15-year highs subsequently made in 2007 (which are still in place). Risk for a near-term correction mounts with a break below the 161- handle, and only a move sub 147.50-148.50 invalidating our longer-term outlook.
GBPCAD Weekly
Although not quite as compelling a case, from the fundamental side, the GBPCAD also looks poised for further gains heading into 2014, with the pair still short of key resistance at 1.7895-1.8167. Similar to the GBPJPY (although lagging), the pair broke to the topside of a multi-year consolidation formation this year, with a subsequent breach above key Fibonacci resistance at 1.6882/93 keeping our focus higher in the near-term. I’ll remain constructive above this level, with only a break below the 1.6250-1.6450 support range invalidating our broader outlook.
Note that the momentum signature has continued to respect the 40-threshold as support since the 2010 low, with this year’s breach above the 70-mark for the first time in 6-years keeping our focus higher in the medium-to-long term. Look for a break below the support-trigger to suggest a near-term correction, with such a move offering favorable long entries lower down. A breach above 1.8167 targets objectives at 1.9198-1.9535 and ultimately 2.00-2.0228.
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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