Anybody who has been following currency related news must have noticed just how contradicting, or at least confusing, they have become. There is an absolute lack of continuity. Sentiment seems to flow and ebb in a strange fashion. US Dollar is the best example, with the constant “risk” and “safety” shift, much of which is created by media for shortage of more convincing explanation. But even economic data and comments by officials make you scratch your head. Yesterday USD spiked strongly on comments by Ben Bernanke that he is closely watching the Dollar. Move was swiftly named ”Bernanke euphoria”, but came to an end as suddenly as it started. Today trend reversed, and by tomorrow we will likely hear about, I don’t know, “Bernanke hangover”, perhaps, if USD drops again.
This is by no means specific to the US Dollar. British Pound is even more sensitive to its own fundamentals, which are apparently shifting as easily as quick sand. Recently, after brief revival, GBP suffered serious sell off on news of economic contraction. Since than we had scares of additional quantitative easing, followed by encouragement that it will not be too extensive. Back and forth it goes. Today one of Bank of England policy makers suggested, that based on newest data on unemployment and inflation, economy could be expanding. Positive for Pound, which registered good day, except against the Dollar. Everything might change tomorrow, when BoE minutes are released. Very difficult period to trade GBP using fundamentals, especially given this currency volatility. Pound crosses turn so sharp and move so fast, that traders are often shaken out on corrections, or emotions kick in trashing even best plans.
Trading charts is probably a little easier, even if emotional trap exists there, too. Sudden fundamental announcement can easily ruin most meticulous technical analysis. Thankfully, not today. Comments by Andrew Sentance lined up nicely with not only my views, but more importantly with trades I had on. Over last few days I accumulated few trades long British Pound and today some of them met objectives.
One of them was in Canadian Dollar cross, GBP-CAD. This trade was set up just yesterday and consisted of 2 separate trades. First one produced 100 pips rather quickly. Price spiked right through resistance, triggering next buy order, after which day was largely over. Today trend resumed and my final objective was achieved for another 100 pips. Very good sequence.
Another trade featured in last post was a long in EUR-CAD. This cross lagged GBP-CAD, so my entry was different and happened at 1.5631. Objective was 1.5695-5700. Price hit 1.5695, and started to drop and I got out at 1.5688, for 57 pips. No trade on a follow up break out, was too busy with more than enough trades to look after. But right now, the 1.5700 area could be another entry point. I’d like to see a strong bullish reversal pattern form, before I decide.
Few days ago sell order in EUR-GBP was described. Almost identical situation, in reverse, existed in GBP-CHF, creating great buy set up. Both of these orders were filled and GBP-CHF has already met its objective, for 118 pips. I’m a little surprised , because Swiss Franc has been rather strong lately, so, if anything, I expected a more decisive move in EUR-GBP. Guess must wait for that one, or maybe even reevaluate my target to a smaller one, since right now everything indicates slower progress. I’ll put that chart up in next post and try to do updated analysis.
Mike K.
[...] More contradicting data. | fxmadness.com fxmadness.com/2009/11/17/general/more-contradicting-data – view page – cached Anybody who has been following currency related news must have noticed just how contradicting, or at least confusing, they have become. There is an absolute [...]
Very good results for one day. I’ve been staying away from pound lately- can’t make any sense of it. Just like you mentioned, the fundamental swings are too big. Even though I’m bullish gbp, these huge pullbacks are intolerable. Have very hard time setting stops, so focus on USD now. If big moves in sterling comes soon, I’ll probably miss it. It is tough.
I have a knack for getting on the trades that don’t work out so well, but the GBP/CAD long and EUR/GBP short worked out well. Many thanks!
Now that you brought up reaction of pound to the news, it will be interesting to see what happens when the minutes are posted later on. I never paid any interest to them before, and I know you don’t respond to news, but after reading todays post and the one from last month, this whole issue piqued my interest.
Grace, very smart decision- if something doesn’t make sense, why fight it?
Good to hear it Paul. EUR-GBP is probably not over yet, but nothing wrong with taking 40-45 pips profit. You can always reenter.
Thing about following somebody…. You still should do own analysis and only take trades that line up with your views. Among other things it builds confidence.
Yeah, Max. Interesting, maybe. Just because there was reaction last month, doesn’t mean there will be one today( for me it is still “tomorrow” right now)We’ll see.
Is that candle at 19:00 bullish enough? Do you use the same size graph to pick everything from the trade to the stop?
Sorry, I mean for EUR/CAD.
Well, yes, it is a nice bullish candle, but it is a little out of context- there is no reversal here, no move out of continuation pattern. Just a candle in the middle of the move, not really important by itself, as seen on 1H chart.
More important bullish candle, though smaller was about 11 H ago, following hammer at around 1.5620-25. Reversal pattern, with small risk so close to support…
I took it and just got out at 1.5676. Region and time of indecision.
[...] the last post I touched on Kamikaze Currency, the Pound, which is jumping like a yo-yo, with contradicting data, seemingly emerging daily. Today was no exception. Yesterday I joked about Bank of England minutes [...]
[...] were today. They contradict with recent statements of officials. For example, recently chairman Bernanke expressed concern with falling Dollar. After all, he also “supports strong Dollar”. According to minutes, however, dollar [...]
[...] look, strong Dollar is desired. Let’s not forget our own financial authorities. FED chairman Ben Bernanke believes in the strong USD, and so does Treasury Secretary Timothy Geithner. Now with Trichet on board, this should be a done [...]