20/01/2016 – Tough headwinds for the GBP

Fellow traders,

I was on TipTV this morning (Wednesday) talking about the pain being felt in Sterling. You can watch it here:

http://www.tiptv.co.uk/finance/gbp-pain-tough-year-for-sterling-ahead/

I thought I’d write a post and add some charts about the situation.

I talked about the monthly GBPUSD chart and how the monthly close of January 2002 was at 1.4105…and how we’ve not had a monthly close that low ever since.  Exactly 14 years ago. Clearly we still have a good few trading days this month to go, however I am keeping an eye on that level.

Furthermore the last big monthly low was in calendar Q1 of 2009 after the crash of 2008. I remember it very very well because I started the London Traders Network. In those days I used to start the sessions with some Market Analysis and I distinctly remember us talking about the state of GBPUSD at the time because we were thinking about it heading back down to the recent January lows of 1.35. (The lowest weekly close was the week of 18th Jan 2009 at just under 1.38). So it’s been a long time since its been down to those lows. My point on TipTV was who’d be a buyer under such circumstances? With referendum/Brexit hanging over the UK who’d be a buyer?

Onto EURGBP and you can see that the Inverse Head and Shoulders that Ive described over the last few months has played out nicely (so far). This is an indication of how far (and how fast) the Sterling has fallen that it’s being beaten up by the Euro – the one way party of Euro weakness and GBP strength is well and truly over I think (well until the next Euro-zone disaster – whenever that may be!)

Finally take a look at GBPJPY – which has been a great example of GBP strength and JPY weakness. Its fallen off a cliff in the last 4-6 weeks. The STAM has been showing GBP getting weaker, but in particular there’s been a surge in Yen strength – which would seem strange due to Abenomics but I think its a case of a) JPY is still seen as the most sensible safe-haven and b) it’s an indication from the market that they don’t believe the Japanese Government can control their currency regardless of what levers they may pull.

So plenty of opportunities for the Sterling bears (like myself) in these markets. Just find a nice place to sell the rallies and you have yourself a good trade plan at present.

Trade well,

Paul