A few weeks ago, I shared a weekly chart of GBP/USD and how it was hitting the top of long-term range. Is it now time to short Cable?
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Of course, there’s no certainty in market speculation, but I think it might be time for all of those sterling bulls to lighten up on their long pound positions.
For one, it seems traders who have been extremely optimistic about the British pound are disappointed with the recent economic data out of the U.K. While good, it’s not the big upside surprises we were getting used to in 2013. If anything, yesterday’s weaker-than-expected manufacturing data and last week’s lower-than-previous GDP read might be a sign of something more than just going from full speed to 3/4 speed ahead growth. And it’s not just the U.K.–we saw weaker-than-expected manufacturing data from both the U.S. and China to suggest a global slowdown of some sort.
So, we’re seeing broad negative sentiment, not only in sterling, but also in risk taking in general being priced in and it may have a bit more to go. After a strong 12% gain since last summer, it makes sense for Cable bulls to take some profit with economic uncertainty creeping back up, and on the rhetoric from BOE Governor Carney that despite being a hair away from hitting 7% unemployment, the BOE will not be in any rush to raise rates any time soon.
On the other side of the pond, let’s remember that the FOMC decided to reduce their bond buying program by another $10B to $65B a month. While it’s still a lot of easy money flowing from the Fed, it is perceived to be bullish for the Greenback in the long-term, if they continue to keep Tapering. That’s a big IF given the mix in economic data from both the U.S. and the rest of the globe.
Technically, again the pair is retesting the top of a long-term range that held back in 2009 and 2011. And on the daily, we’re seeing what could be a rising wedge reversal pattern being broken to the downside. I’m ready to short this bad boy, but there are major events this week that I’m going to wait for: the Bank of England’s monetary policy statement and the U.S. Non-Farm Payrolls report.
From the MPC meeting, traders will be watching for any mention of inflation in the U.K. and how it may influence forward guidance. The U.S. jobs report is going to be a tricky event because of the hinderance to job seekers the polar vortex may have brought upon the country. For me, I think we’ll see another weaker-than-expected net change like in January, which could produce a selling spike in the Greenback. If that’s the case, I’ll look to short somewhere between 1.6400 – 1.6500 if I see it.
Whatever the case may be, I’ll wait for the Friday jobs report, re-assess and then pull the trigger if there is an opportunity there. Until then, I’m still watching USD/JPY to nibble on for a long position as it’s entering my buy zone between 100.00 – 101.00. Stay tuned by following me on Twitter and Facebook!