There’s a saying that “7 days is a long time in politics” well in financial markets it would appear that 24 hours is a long time in trading. I’d put up a piece on Thursday evening / Friday morning about GBPUSD hitting new highs and intimating that a daily and weekly close above the 1.66 level would be an indicator of continued sterling strength. Well what a difference 24 hours makes……
Id mentioned in my earlier piece that I wanted to see prices close above the 1.66 level on a daily and weekly basis. Well we got it on a daily basis on the 23rd. But then had an instant turnaround as a slew of news hit the wires on Wednesday, Thursday and Friday. Everything from Argentina giving up the fight to control US dollar purchases to news from China and Emerging Markets. However probably what really tipped the balance for sterling were comments made by Carney at the WEF in Davos effectively trashing his own policy of ‘forward guidance’. These didn’t help the GBP at all and we can see from the 4 hour chart above that having made new highs we got a bearish engulfing / momentum reversal candle pattern – followed by a quick and hard sell-off.
The daily chart shows an even stronger bearish picture with a very bold BeE/MRC formation. We closed the week at 1.6481 – very much off the highs of 24 hours previously!
Clearly it suits Carney for the GBP to be weaker against a basket of currencies in an effort to stimulate exports. Personally I’m going to be watching this currency with interest over the next few days and weeks. I stand by my plan that if we get close above 1.66 on the weekly charts then it points towards higher prices. In the meantime I’ll just take ‘smash & grab’ trades on the retrace and wait and see if it turns into a more significant reversal.
The weekly chart shows a shooting star pattern. Lets see if there’s another assault on the 2013 high of 1.6578 or even 1.66. Perhaps the high of Friday morning (1.6666) will be the high for near future and we’ll drop away. Will that monthly 200 MA at 1.6636 be enough to cap the rally like it did in 2011 and 2009? Who knows? I’ll just let the market play it’s hand and see where it goes.