Currency markets are reversing some of yesterdays move as the pound bounces back some 50 pips versus the greenback and the Euro does even better, rallying 80 pips to recover the 1.44 level. If the euro holds onto the gains it will be the first up day in seven and the charts are definitely beginning to look like a potential top (head and shoulders) formation may have been created. If this is confirmed the cross could be looking at a return below 1.35, which is why so many analysts have been cautioning on the weak dollar story.
The GBP / USD spread is $1.9884-$1.9887 up 50 pips this morning but the pound has still managed to weaken once more against the Euro and is at around the all time lows versus the Euro block ersatz currency. Sterling has now fallen almost 10% from the highs of January against a currency that we are supposed to be quite stable against. The entire trading range for the previous three years was only 6%. The problem with this type of weakness is that it can quickly get out of control as the 'hot' money deserts the sinking ship. In hindsight, of course, we should all have been wary when we read earlier this year that many central banks were starting to buy pounds as an alternative to their US dollar reserves. When do Central Bankers ever get it right? Support in Cable is at $1.9800 and is unlikely to be tested today in light of the rebound this morning. Punters are long and looking to see if we break above the $1.9920 level.
Online Forex Trading, 20 Dec 07
As suggested in yesterday’s comment (when we were up at 2.0200) the temptation for the latest move in GBP / USD to make an attack on the $2 level before the year end became too much. The constant flow of poor economic news coupled with the Bank of England easing stance on rates has put the skids under the pound. The current price is now at $1.9905-$1.9908 down another 70 pips this morning and there is an ominous feeling that the selling may have only just begun. With many analysts calling for a readjustment back down to the 1.75 region. The fall in the pound will be putting even greater strains on energy prices as the ‘weak’ dollar did at least temper oil price hikes to some extent. Even though Oil is off its highs in dollar terms, against sterling it is back up pressing on the top of the range.
Suddenly all I am hearing on the news channels are dollar bulls. It seems only a few weeks ago that the bears were calling for much further weakness. However the recent, and lets be honest, quite modest bull reversal has brought out the greenbacks supporters. The argument about the twin US trade and budget deficits were always slightly difficult to agree to as the tax rate in the States is modest by international standards. So if the Budget deficit became too much of a problem a small hike in Government slice would solve much of it. The same cannot be said about the European and Japanese budget deficits which are much more structural in nature.
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Online Forex Trading, 18 Dec 07
The currency markets are pretty choppy still with the dollar continuing to hang onto recent gains. Cable is struggling to get back above 2.02 having recovered the level yesterday and given it up this morning. There are a lot of long term sterling bears out there and it is difficult to argue with them on fundamentals. Punters are reversing positions on a moment by moment basis as quick profits appear to be the order of the day.
As mentioned yesterday the 'weak' dollar is having a bit of an Indian summer and truth be told is looking quite comfortable at these levels (famous last words). The slow drip drip rally of the greenback of gradually grinding out the weak bears and we are now seeing a good chance of a further spike higher as the last dollar sellers get bashed out of positions.
Online Forex Trading, 17 Dec 07
The stream of data continues today with the one that used to be the Daddy when I was a 'bright' young trader, the US Current Account (deficit). With the dollar still showing signs of weakness this is a figure that will strike fear into the currency markets as it can frequently bolster one side or the other in the never ending battle for supremacy. Cable is recovering a bit from Fridays sell off but bulls are hard to come by just at the moment and the odds must now be shortening on a fall below the $2 mark before Christmas. Normally by this time of the year the markets have started to slowdown. However this year the volatility just keeps on going.
The dollar has now recovered quite some ground versus all the majors with the euro cross now down at 1.4425-1.4427, more than 5 cents from Novemeber's high, against the Yen at 112.97-112.99, 5.5 cents higher and the Sterling / Dollar spread 2.0187-2.0190 almost 10 cents to the good. Whilst this is by no means the end to the dollar bear scenario it does go to show that you should not take any move as read.
Online Forex Trading, 14 Dec 07
The Cable spread remains stuck around the $2.04 level with first the bulls then the bears seemingly having the upper hand only for either the slaughter house or the hunters to respectively kill them off. At $2.0399-$2.0402 we can see short term support at $2.0370 and resistance at $2.0445. Inside here it is difficult to get excited.
A few weeks ago we were pondering the death of the greenback as the USD / JPY spread betting cross headed inexorably towards 100. Since then the Fed cutting rates / adding liquidity worrying about growth have all had the opposite to expect effect. The cross has now bounced back to 112.38-112.40 from the low at around 107.25 and, truth be told, is looking quite comfortable.
Online Forex Trading, 13 Dec 07
On the FX markets the pound is giving up yesterday’s gains in early trade with cable down at $2.0414-2.0417 on not much information. The pound dollar cross, whilst undoubtedly on a downward trend since early November, is still very much capable of short sharp bursts higher, especially as traders try to undermine central bank intentions. The failure, yesterday, for the cross to get back above the short term bull trendline at $2.0560 has given the bears the chance to send us down. Their target will be the $2.0220 support area which is also the big two year long bull support level. A break and close below this line would undoubtedly be taken, by many traders, as a signal that the bull run has finally ended. While we remain above it we are still in a bull scenario so the Financial Spreads buyers are still reasonably comfortable.
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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Forex Trading Online' by DB, updated 21-Dec-07
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