British Pound Talking Points:
Looking for a fundamental perspective on Crude oil? Check out the Weekly Crude Oil Fundamental Forecast.
Technical Forecast for British Pound: Neutral
My technical outlook for the British Pound over the coming week is neutral…but that doesn’t mean it will be quiet. In fact, the reality is likely to be exactly the opposite of the calm that a ‘neutral’ setting would imply. It is likely that the currency maintains its struggle to set a clear and consistent course through the near future, but volatility will likely remain explosive for the currency. There is little surprise that Brexit is a key concern for the currency and charts traders should not write off that fact just because it strays into the fundamental realm. So long as the headlines signal that there is no clear course for the UK’s divorce from the European Union, the market will not fully commit to a clear direction on the currency. There is too much influence tied into the state of the economic relationship (readily seen in EURGBP) for the more stoic and systemic market interest behind Sterling capital flows to make a commitment.
In the absence of this deep current to stabilize markets, more volatile and speculative elements will exert greater influence over price action. Hence, we are left with exceptional volatility but limited capacity to spark a trend. Below is an equally-weighted index of the Pound with a 20-day average true range (ATR) as a percentage of current spot. The activity measure is at its highest levels since November 2016 – shortly after the initial Brexit detonation. Tight ranges do not survive such volatility for long. It can readily lead to ‘technical breaks’ but it doesn’t necessarily offer the transition to a reliable trend unless underlying speculative hurdle is crossed. This is one of those times where technical traders should keep tabs on the ‘other’ analytical technique.
Chart of an Equally-Weighted Pound Index with 20-Day ATR as Percentage of Spot (Daily)
From the benchmark GBPUSD, we find the same general conditions registered from the Sterling index above: there is considerable volatility with unmistakable range. The volatility range on this particular pair is similarly very high but not as extreme as the individual currency in relief – the Dollar’s restraints likely bear on this relationship. To the topside of this pairs, we have a resistance just shy of 1.3400 born of the confluence in a rising trendline of highs back to July as well as the midpoint of the 2018-2019 bear wave. The lower threshold is less overt. The 200-day moving average and a short-term (though questionable due to the January flash crash) trendline coincide around 1.2975/95. I would hold neither to hold up against further bouts of extreme volatility nor to spark a reliable trend.
GBPUSD and the 50-day and 200-day Moving Averages (Daily)
For those that follow volatility measures regularly in their analysis, the paths of implied (expected) and historical (realized) activity measures can offer more distinctive insight on the markets. Below is the GBPUSD overlaid with the CBOE’s volatility index derived from the same pair. On a close-over-close basis, the measure is remarkably high but it didn’t overtake the November peak when Prime Minister May’s withdrawal proposal worked out with the EU was rejected and the future of the Brexit proceedings were thrown into disarray. However, if we look at the measure on an intraday basis, it charged to the highest since the aftermath of the initial Brexit vote (the later months of 2016). A comparison of this measure and the 20-day ATR can offer useful analysis.
Chart of GBPUSD and the CBOE’s Pound Volatility Index (Daily)
Another important cross to watch for those that want to get a technical perspective of a fundamentally-distracted currency is EURGBP. The Pound is the focal point of Brexit but the Euro (and EU) have as much to lose if the negotiations turn out poorly. This pair is therefore understandably afflicted. The 20-day ATR here is extreme and it serves as a good reminder that technical boundaries are not the only consideration when trading Sterling. The slide through 0.8625 back in March was a long-term range support break and it seemed like the tides would shift on a multi-year congestion pattern that followed an impressive rally from the pair. As significant as the cue was, momentum would never set up camp. Friday’s drop was the second largest single-day loss in two years. That is the kind of situation we are dealing with here – not the slow and methodical setup to a inverse head-and-shoulders pattern that you may expect from a look at just levels.
Chart of EURGBP and 50-day Moving Average (Daily)
From the third most liquid Pound-based major, we have a combination of the Sterling’s own volatility and the addition of the Yen’s penchant to reflect market volatility. Here, the floor of a rough rising trend channel from the January flash crash is mingling with the 50-day and 200-day moving averages around 144.25/75. I would not expect this zone of support to be respected should we feel subsequent waves of volatility similar to what we’ve experienced the past two weeks. For what it’s worth, the collective resistance the trendline pulled from a descending series of highs and 38.2 percent Fibonacci retracement of the February 2018 high to flash crash low (excluding the tail) around 148.75 would likely carry greater weight. Yet, the higher the volatility, the more intangible the border becomes.
Chart of GBPJPY along with 50-day and 200-day Moving Averages (Daily)
Finally, a look at speculative positioning reveals there is an intent gap between the larger and smaller players in the market. The large speculators measured in the CFTC’s Commitment of Traders (COT) report reveals that futures traders of size took a considerable gamble by significantly shifting away from the net short view through Tuesday (when the data collection stops for the week). They were likely expecting a Brexit breakthrough and the same from the Cable. That didn’t occur. It is also true that total speculative interest is softening in the face of volatility. Retail traders are not so put off by the activity levels. While total retail positions measured by IG’s Client Sentiment data has been consistent, the swing between a net long and net short position has been dramatic. Reactive and range bound market conditions are what retail traders typically look for – dangerous but temporarily appropriate. Follow what retail traders are doing, but they will likely put more faith in technical boundaries than our current conditions general deserve.
Chart of Net Speculative Positioning in Dollar Futures Positions from CFTC Report (Weekly)
Chart of Retail Trader Positioning from IG Clients (Daily)
Other Weekly Technical Forecasts:
Weekly Trade Levels for US Dollar, Euro, Sterling, Loonie, Gold & Oil
DXY, Euro, Loonie Monthly Opening-Ranges Intact
The US Dollar Index is trading into the monthly opening-range highs into the start of the week and the focus is a reaction around the 98.05/10 resistance zone- note that the monthly ranges in Euro and Loonie also remain intact. In this webinar we review updated technical setups on DXY, EUR/USD, USD/CAD, GBP/USD, Crude Oil (WTI), Gold, USD/JPY, AUD/USD, EUR/AUD & SPX.
Why does the average trader lose? Avoid these Mistakes in your trading
Key Trade Levels in Focus
DXY – Immediate focus is on topside resistance at 98.05/10. Initial support at 97.87 with near-term bullish invalidation raised to 97.71.
EUR/USD – Euro is coiling into the monthly opening-range just above slope support. Immediate focus is on support at 1.1140. Initial resistance at 1.1187 with near-term bearish invalidation at monthly-open resistance at 1.1215– look for a bigger reaction there IF reached. A break lower would expose 1.1110.
GBP/USD – Sterling broke below multi-month slope support last week with price responding to near-term pitchfork support into the open. Initial resistance at 1.2798 with bearish invalidation at 1.2859. Downside support objectives at the August low-day close at 1.2697 and the 100% extension at 1.2662.
Gold – Risk for near-term recovery while above the yearly / monthly low-day close at 1270. Initial resistance at 1280 with near-term bearish invalidation with the monthly open a 1283.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Key Event Risk This Week
Economic Calendar – latest economic developments and upcoming event risk
Active Trade Setups:
—Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex
AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop
AUD: The Aussie outperforms following a shock election outcome, in which Prime Minister Scott Morrison secured re-election (full story). In reaction, the Aussie gapped higher at the Asia open, reclaiming the 0.69 handle against the greenback. However, as equity markets have headed lower throughout the European morning, risks are for gains to be faded. Alongside this, key headwinds in the form of trade war tensions and a potential RBA June rate cut are likely to limit upside. Reminder, RBA Governor Lowe due to speak tonight after RBA meeting minutes (calendar)
Crude Oil: Oil prices surged at the Asia open as Saudi Arabia signalled that cuts could be extended throughout the remainder of 2019 at the JMMC meeting, while President Trump had also stepped up his critical rhetoric towards Iran. Although, with equity prices beginning to push lower, oil prices have pared the majority of its initial gains.
Equities: US equity futures have headed lower amid the continued crackdown by the US on China’s Huawei, which in turn has chipmakers come under pressure, while Google also stated that they are to restrict the company’s use on android services. Elsewhere, Apple’s price target had been cut by HSBC to $174 (median street price target = $220), citing concerns over China, while tariff led price increases on Apple products could also have dire consequences on demand. Apple shares currently lower by 2.4% in pre-market.
Source: DailyFX, Thomson Reuters
DailyFX Economic Calendar: – North American Releases
WHAT’S DRIVING MARKETS TODAY
- “Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low” by Nick Cawley, Market Analyst
- “COT Report: Japanese Yen and Euro Shorts Collapse, USD Longs Reduced” by Justin McQueen, Market Analyst
- “Crude Oil Price May Be Carving Out a Top” by Paul Robinson, Currency Strategist
- “Using FX To Effectively Trade Global Market Themes at IG” by Tyler Yell, CMT , Forex Trading Instructor
— Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.email@example.com
Follow Justin on Twitter @JMcQueenFX
Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low
Gold (XAU) and Silver (XAG) Price Analysis and Charts.
Gold (XAU) Needs to Support to Hold
The sell-off on gold continues with the precious metal down around $30 in less than a week. Gold is under pressure from a resurgent US dollar, buoyed by last Friday’s Uni of Michigan data which smashed expectations and hit a multi-year high. The important 61.8% Fibonacci retracement level at $1,287/oz. failed to provide any support when broken last week, while the $1,287 – $1,281/oz. zone made up of old horizontal support is being tested now. A clear break and close below opens the way to the recent double bottom around $1,266/oz. which is currently being guarded by the 200-day moving average at $1,268.6/oz. Below here the 50% Fibonacci retracement level at $1,262/oz heaves into view.
Gold (XAU) Daily Price Chart (August 2018 – May 20, 2019)
Silver (XAG) Nears a Fresh Six-Month Low
Another precious metal under heavy selling pressure. Silver is now at levels last seen in early December last year and is over 11% lower since making its recent high of $16.21/oz. in late February. The downtrend since the late-February high continues to be respected and it is possible that silver completely retraces all the way back down to the November 14 low at $13.89/oz. Psychological support at $14.00/oz. may slow the decline, while the CCI indicator shows that the market is extremely oversold.
Silver (XAG) Daily Price Chart (August 2018 – May 20, 2019)
IG Client Sentiment data show that retail traders are 79.1% net-long gold, a bearish contrarian indicator. Recent daily and weekly sentiment shifts give us a stronger bearish contrarian bias.
— Written by Nick Cawley, Market Analyst
To contact Nick, email him at firstname.lastname@example.org
Follow Nick on Twitter @nickcawley1
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