British pound came under pressure last night, after a credit rating agency, Fitch Rating , issued a warning. It stated that UK is at risk of loosing its AAA rating status, more than any other top-rated nation. It has to do with widening budgetary gap and seemingly lack of credible plan to restore fiscal stability. It wouldn’t be the first time that negative comments of this sort were made. In May S&P lowered outlook for UK from stable to negative, move that was largely symbolic, not effecting credit rating. By contrast, though, Moody’s opinion is that ” UK is among resilient Aaa rated countries”, as stated in November. Go figure.
This lack of consensus should be no surprise coming from industry that lost any credibility at the beginning the financial crisis. These are the same people who were rubber stamping highest ratings on securities defaulting just weeks later. Either complete incompetence, or fraud- take your pick, one is as bad as the other. I find it amazing that all three of these agencies were not disbanded by authorities and industry rebuilt from scratch. As is, people are paying attention to them, even though they still have no congruity. For example, if shortfall in UK budget is so disturbing, how should US or Japan rate? In case of America we are talking about trillions of dollars over next decade. No warnings about that?
Fairly or not, GBP fell sharply on the news. To make matters more complicated, move came at an unusual time of day, in the middle of Asian session. Sell off lasted only an hour and Pound has been recovering since, but it messed up some of my planned trades, like the intended GBP-AUD sell featured just yesterday.
My intention was to go short this cross at 1.8070. Price reached as high 1.8058, when the news hit. Reaction was strong, taking out support at 1.7970. By now most of the losses are recovered. My plan fell apart, and price behavior no longer fits into it. NO TRADE. I’m stepping away from this cross and wait for next set up or look for it somewhere else.
One of the things I”m looking at is a possible correction in NZD crosses. By now hourly charts are leading time frame, seeking weakness in Kiwi. For example this NZD-JPY chart has potential entry at 66.15, with 80-90 pips objective. If this pair makes new high, sell order will be readjusted. I think we will see a counter-move before the end of this week, hopefully sooner. This goes for few more NZD crosses, so I’ll have spread my activities among accounts. If I’m caught on a wrong side of the move, no one account will be damaged too much. Of course, that’s the worst case scenario, not expected outcome, but possibility must be considered and prepared for.
Mike K.
Hello,
I like the fact that you do not fight the market. Pound-Aussie is not doing what expected, so you let it go, no forcing trades. Good lesson here.Thank you.
Reading back your posts about gap trading, they say that if the gap is not filled first day, it can take much longer. That’s why by Monday morning fill the gap trade is no longer valid. Per your experience, do you expect the gaps in NZD to be filled this week or later?
I appreciate your detail analysis on the forex market. It is rare to know of forex trader who is so fundamental focused.
Michelle, more often than not they should be filled before week is over. Almost all other instances next week. It is extremely rare that gaps stay open longer than that. The bad news is NO GUARANTEE, so you shouldn’t just blindly get into a trade hoping for filling the gap. You still need a set up and rules to follow.
Forex Educator, thank you for kind comments. Most of my trades are technical, since, in my view, fundamental analysis lacks the precision needed for relatively short term trading. However, it is a very important element, adding additional dimention to trading, so I try to look into it.
why does everything look different?
delete that. Somehow I found myself on a different version of this site I guess
[...] less than solid results. Most recently discussed cross was NZD-JPY, which I sold, as explained in British credit rating at risk. This pair finally experienced a move in my direction couple of days ago, but it has been very [...]
[...] just had its sovereign credit downgraded. The rating on countries government bonds was cut by Fitch Ratings to BBB+ and the two other major ratings companies are threatening to follow suit. It is after Greek [...]
[...] is highest possible, the S&P issued a negative outlook on long term rating. This is basically the same statement as the one released before only stamped with today’s [...]
[...] is highest possible, the S&P issued a negative outlook on long term rating. This is basically the same statement as the one released before only stamped with today’s [...]
[...] possible, the S&P issued a negative outlook on long term rating. This is basically the same statement as the one released before only stamped with today’s [...]
[...] is highest possible, the S&P issued a negative outlook on long term rating. This is basically the same statement as the one released before only stamped with today’s [...]