While markets got cozy with British Pound yesterday, after new PM took over, it was another story today. GBP came under pressure couple hours into European trading and remained that way for the rest of the day. Sterling fell against most currencies, including European counterparts. Interestingly, though, for the most part GBP managed to stay above important support areas and within price bands established earlier in the week. One could view today’s action as a pullback after earlier gains, or response to trade balance figures. But it does illustrate that positive sentiment based on more clear political picture in UK is not that wide spread.

In the meantime, in Washington, government announced that the April deficit soared to $82.7 billion, much higher than last year’s April deficit of $20 billion. This is troubling in month when government normally runs a surplus, because of taxpayers filing their returns, but in 2010 revenues were down 7.9 percent. Administration is forecasting that the deficit for this year will hit an all-time high of $1.56 trillion, many times over that of Greece, Spain and Portugal combined. Which begs a question- will rating agencies start downgrading US debt, too? For all practical purposes it is not repayable already and only going to get worse. Currencies largely shrugged it off, without any meaningful reaction. For now.

Pound weakness didn’t help my intended trade in GBP-CHF. Using hourly chart, idea was to buy a breakout above 1.6660 resistance, seeking 200 pips. Trade was executed, but price reversed soon after. And not too gently, either. Sell off was relatively big, with cross falling about 250 pips.

Shortly after breakout, candles formed this impossible to miss reversal pattern, anchored by very large bearish candle. It was a sign to get out and take my lumps, 83 pips. This type of failed breakout suggests larger move in opposite direction and is recognizable. One of these days I’ll write a post devoted specifically to this, with more examples. For right now, price is still above 1.6350, important support in this area, so this uptrend is still not broken, more like settling into wide congestion zone. Currently price is around 1.6460. I’ll be looking for signals there.

No trades in AUD-JPY today. Price contracted and the swings are smaller. I retain sell order at 81.97 even though now price seems to be building rounded bottom of sort, which suggests rally back to about 85.00, major resistance. My plan for Thursday is to trade smaller swings above/below minor highs/lows, probably using 15M chart. Green lines indicate possible entry levels. Yen pairs will likely stay sensitive to all  news and not necessarily from Japan. We could reasonably expect slow progress up, under most conditions, and sharp sell offs on any news perceived as “bad”. In case of Aussie-Yen, though, it should be remembered that Australian employment numbers will be released on Thursday, So this cross could move more than any other, given market sensitivity to labor news.

Mike K.