Analys från DailyFX
Stay Flexible
Talking Points
– Obtaining a broad view is good, but don’t leave out the details
– Framing a trade using fundamental themes; technicals guide.
– Be quick to assess market reaction to news.
Coming into 2013 I was very bearish on the British Pound. High inflation, low growth, and a stagnant labor market made the British Economy look rather unappealing. Certainly, for the first six months of the year that view was warranted: the GBPUSD dropped by -6.85% while the EURGBP gained +5.37%.
Part of the reason for my bearishness on the British Pound was that Mark Carney would arrive as Governor of the Bank of England in July. In the months leading up to the announcement that he would take the reins from Mervyn King, Mr. Carney offered numerous suggestions for how to promote growth in a slowly growing economy while interest rates were pinned near zero percent.
While my bearish bias leading up to Mr. Carney’s ascension to the governorship was correct, it was certainly wrong after Mr. Carney took control of the BoE. In fact, the British Pound is the best performing major currency in the second half of 2013 (thus far). During the first month of the rebound (July to mid-August), I was skeptical. But when presented with new information – the BoE outlined a rather hawkish forward guidance in the August Quarterly Inflation Report and the Pound started to rally – I changed my opinion, dramatically. In December, I was near certain that a Carney-led BoE would mean excessive easing; in August, I suggested that the BoE was signaling an exit of non-standard policy measures. My initial forecast couldn’t have been more wrong in hindsight, even though it looked sanguine through the first half of 2013.
Chart created by Christopher Vechhio using Marketscope 2.0.
My top trading mistake of 2012 was “Ignoring the Details.” The lesson was that if you ignore price for the sake of your opinion – even when the charts may be indicating otherwise – you put yourself in a considerably risky situation. However, building on my mistakes, I’ve become more flexible. It wasn’t just that I started to take long GBP positions during the second half of 2013 – it was also that I prevented needless losses resulting from arrogance. Bend your opinions to match the charts; don’t try to bend the charts to match your opinion.
— Written by Christopher Vecchio, Currency Analyst
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
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.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
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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