Story of the day in Forex markets have been comments by Bank of England governor about deposit rates. Mr. King indicated his intentions to take steps in order to make commercial banks increase lending. The term he used during his speech before parliament was “reducing the remuneration”. Banks have been accused of hoarding liquidity, low cost money injected in the economy by central bank, and not passing it along to broader economy, like smaller business and consumers. Idea is that by reducing rate BoE pays on deposits that financial institutions keep with the central bank, it will become more advantages for them to lend the money out.
Mr, King seems to follow what other central bank has already done about 2 months ago. Riksbank of Sweden, lowered its deposit rates for commercial institutions. In fact, they established negative rates, which is believed to be for the first time in history. Jury is still out on the immediate effect of this action. During its next meeting on September the 2nd, Riksbank upheld the policy, but failed to disclose if these actions led to any increase in lending. Perhaps it is too early to say and need another couple of months in order to have a good idea if this drastic step was productive.
Bank of England gave no indication if they’d go negative as well, but during previous comments on the subject they didn’t eliminate this as a potential weapon in their arsenal. We’ll have to wait and see, buy British Pound was punished on these comments. Sharp sell off came about, which is still under way at this writing. I have been watching GBP-CHF for a buy opportuity over last couple of days, but today’s move put an end to this particular play. Price moved outside my window of interest on 4H chart.
Originally I was looking for a buy in 1.7250 area, later on for another at 1.7160. Yesterday afternoon (my time) nice reversal pattern finally formed, something I had hoped for. Two things, though. First, it happened too low, pretty much just outside support zone. Second, it came too late in the day. Have to sleep sometime, hence no trade. Even so, entry would have been on the close that nice doji/hammer at around 1.7160, with a subsequent move of over 100 pips before collapse on King’s remarks. Instead of a trade I have a case study…..Moving on.
Looking at NZD-CAD, hourly chart of this cross. Price is trying to built a topping pattern. This pair has been in a long uptrend, for the most part on the strength of Kiwi. I’m not looking for a major turning point, but rather relatively small move on this time frame. Well defined support at about 0.7550 was undercut during last run down. I want to get in on the swing if we see new lows again. Sell order is placed at 0.7539, objective being 50-55 pips. If that happens, I might take a look at longer term chart ans see if there is a trade of bigger magnitude.
Mike K.
Why do you think Ponu reacted so negatively on the comments. Currencies have been getting stronger on signs of central banks easing. And this would another easing, correct? Thank you.
Not sure how you can just say “moving on”. Don’t you think this is a good level to go long gbp/chf at about 1.7070?
Gunnar- as of recently(last 1-2 months) any additional easing has not been received kindly by markets. It already happened to Pound before. Why? Books could be written about, but in reality, it is really hard to explain, and it really doesn’t matter, unless you can step in front of this kind of announcement and make money with. I can’t do it, that’s why I don’t trade news.
Heather, it doesn’t fit into my strategy, I don’t see a long trade forming here any more, so no buy, just because the price moved lower. In fact, selling could be more appropiate, since it is under important support now.
x2pkEY I want to say – thank you for this!
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