Pounds to Dollars 20 Oct 2010

An interesting couple of days for the pounds to dollars pair which fell sharply yesterday (along with most other dollar pairs and commodities) as the Chinese interest rate decision rippled across the markets, before bouncing back today, much as expected, following the long awaited spending review programme from the UK government.  The latter appears to have pleased the market as the British Pound recovered sharply to recover all of yesterday’s losses.  From a technical perspective the low of yesterday ran into strong support from the 40 day moving average which provided a solid platform for today’s recovery, and provided this upwards momentum continues tomorrow then expect to see cable to break back above both the 9 and 14 day moving averages in due course and thereafter run onto USD1.60 and beyond once again.  Provided this pattern emerges then we should see a continuation of the recent bullish trend and any clearance at USD1.6107 will further cement this move in place and, from there, we should be begin to penetrate the deep price congestion which runs all the way through to USD1.6876.  The outlook remains bullish for the pounds to dollars pair provided this analysis holds and will be further confirmed once the 200 day moving average starts to turn higher.

Aside from today’s spending review it was relatively quiet for the pair but tomorrow sees the all important retail sales for the UK which are forecast to come in at 0.4% against a previous of -0.5% and should this figure vary wildly (to the downside) then we could see some temporary sterling weakness.  Meanwhile in the US we have the weekly unemployment claims which are expected to remain relatively flat at 454k, coupled with the Philly Fed manufacturing index which is expected to show a significant improvement over last month’s -0.7 to a +2.3.  The week rounds off with the G20 meeting.

Doubts grow on prospects for G20

Pounds to Dollars 18 Oct 2010

An interesting signal on the pounds to dollars pair on the daily chart which ended on Friday as a deep shooting star candle which momentarily breached the USD1.60 price handle before closing back below at the original open of the day and forming a perfect candle as a result.  As such this gave further weight to Thursday’s candle which also exhibited an element of weakness as characterised by the shadow to the upper body, and this duly converted into a temporary pullback with the pounds to dollar pair currently trading at USD1.5871.  The issue now is whether this is a temporary reversal or the start of a longer term change in sentiment and the key is likely to be the 14 day moving average which has already provided interim support to the move lower this morning with a bounce and hold at this point.  Should this indicator subsequently be breached then we could see a deeper pullback to re-test support at the 40 day moving average currently at USD1.5646 where further support awaits.  The move lower today comes as no great surprise following the analysis of the weekly usd index chart which closed on Friday as a long leg doji, suggestive of a reversal of sentiment towards to the US dollar.  However, the longer term remains firmly bullish for the pounds to dollars pair provided we see the platforms of support outlined above coming in play, and as such, today’s pullback may only offer the US dollar temporary respite from its slide lower.

There is no significant fundamental news for either the British Pound or US dollar until tomorrow when we have building permits in the US and a speech from BOE Gov King in the evening, which is followed on Wednesday by the MPC meeting minutes coupled with PSBR data.  Of course, this week is dominated by the Spending Review in the UK when the UK government is expected to lay out its proposals for a reduction in the deficit.

Pounds to Dollars Chart 15 Oct 2010

The pounds to dollars pair continues to climb higher, albeit in a relatively muted manner, with yesterday’s narrow spread up candle exhibiting a degree of weakness as characterised by a deep upper wick to the body of the candle.  However, this has failed to convert into any meaningful pullback in this morning’s early trading, with the pair moving higher once again to trade at time of writing at USD1.6050.  From a technical perspective the key level overnight was the breach of the USD1.5994 price handle which had presented potential resistance to any continuation of the recent bullish trend and provided we hold above this level in today’s forex trading session then this should provide a further level of support to the move higher.  The trend is fully supported by both the 9 and 14 day moving averages, along with the 40 day which is now beginning to slope higher once again, and we now only await a turn in the 200 day for a confirmation of any longer term bullish trend.  As we are now pushing deep into the resistance between USD1.58 and US1.68 to the upside any move higher will need some additional momentum but this is likely to come from the QE2 programme in the US which is due to start in the next couple of weeks, which will no doubt provide the impetus to push cable towards the USD1.6876 and possibly beyond in due course.

The fundamental news today is dominated by a speech from Fed Chairman Bernanke entitled “Monetary Policy Objectives & Tools in a Low Inflation Environment” – never has such a dry subject been so eagerly awaited, although the markets are also waiting for core CPI, core retail sales & the UoM consumer sentiment numbers expected later this afternoon.

Pounds to Dollars 13 Oct 2010

The pounds to dollars pair once again appears exhausted as it approaches the USD1.6000 price handle, repeating the pattern that we saw back in early August, which saw the pair retrench to test the USD1.53 price region before recovering.  Whether this pattern is repeated once gain, only time will tell, however, last Thursday’s deep up thrust candle which touched a high of USD1.6018 has given us a possible early warning signal that the present price action is running out of steam.  We saw further evidence of this yesterday on the daily chart with a break and hold below both the 9 and 14 day moving averages.  In today’s forex trading an attempt to rise appears, once again, to have run into resistance from the short term moving averages now immediately above and for the time being we can expect to see a further period of sideways consolidation at this level.  Moreover, it is interesting to note that the 200 day moving average is slanting to the downside also suggesting that the current move is exhausted.  For any continuation of the upwards rally we need to see a break and hold well above the USD1.60 level which would then provide the requisite platform of support for the next leg up in the move.  The irony, of course, from a fundamental perspective is that we are expecting a period of sustained US dollar weakness while the markets wait for the FED to implement the next round of quantitative easing – QE2 – and as such would lead to cable rising but this is far from certain at present.

As in the US the employment picture for the UK remains weak with today’s claimant count coming in at 5.3k against a forecast of 4.3k and a previous of 3.8k. The only other significant item of fundamental news for the UK this week will be the inflation report hearing before the Treasury Select Committee.

Currency race that everyone is trying to lose

Pounds to Dollars 6 Oct 2010

Yesterday’s wide spread up candle lifted the pounds to dollars pair once again from its recent sideways trading range in the USD1.58 price region, closing marginally above the USD1.59 price handle, having reached an intra day high of USD1.5930.  As such the pair has created a further step up in the short term bullish trend, as it looks to break above the USD1.60 region in due course, having first re-tested the highs of early August at USD1.5994.  Yesterday’s price action was once again firmly supported by the 9 day moving average with the low of the session at USD1.5750, finding solid support from the 14 day moving average immediately below – both strong trading sessions that the present bullish trend remains firmly in place.  Indeed we have seen this facet of the technical picture repeated today, this time with the 9 day average as the low of the session at USD1.5832 bounced off this indicator before pushing the price back above USD1.59 to trade at time of writing at USD1.5901.  As such the upwards slope for cable continues to hold and provided we see the USD1.60 region breached we are then entering the underside of deep resistance which extends from this point through to USD1.6876.  The depth of any penetration of this area will largely depend on continued weakness in the US dollar rather than strength in the British Pound and given the state of the usd index at present it is the former that is likely to drive cable higher over the short to medium term.

The fundamental picture at present is largely being dictated by the FED and the consequences from its desire to implement QE2 in the face of a stalling of the US economic recovery which was further evidenced today by the ADP data which came in worse than expected at -39k against a forecast of +23k.  Should this be replicated in Friday’s non farm payroll data it may be sufficient to push the usd index down another notch lower with a consequent rise in the pounds to dollars pair.  Between today and Friday we have the weekly unemployment claims in the US which are likely to be overshadowed by the nfp data and, in addition tomorrow, we have a UK rate statement from the Bank of England.  Rates are expected to remain on hold and as such are unlikely to cause any violent reaction in the sterling pairs.

IMF chief warns on exchange rate wars