Checking the Sterling vs US Dollar chart is to admire a story of recent fortitude by the two best-performing currencies in FX in recent days. At the same time, is about a story of a market plagued with mine fields with participants trapped in both sides of the market.
To start with, one must understand the state of play in GBP first, with the 25-delta 3m RR + large net short position in GBP futures, suggesting a lot of pessimism has been priced in, which essentially means that any positive Brexit news run the risks, as seen, of having a far greater effect to the upside vs negative headlines to the downside, as perma bears get trapped wrong-sided.
In the USD, it's now all about the re-pricing of Fed hikes, with the market starting to consider that the ed may continue the pace of rate hikes of one every 2-3 months until mid 2019, as the data seems to justify up until this point. The surge in wage growth in the US to 2.9% y/y was a watershed moment, as it means that the tightness of the labour market, after all, is starting to be filtered into higher salaries. Thusday's US CPI may be the stroke that breaks the camel's back for a new belief in higher US inflation, which should be interpreted as the icing on the cake and a precursor of more USD strength in H2. For now, the hammering of the UK vs US yield spreads communicates that the market risk is skewed towards the downside.
The characteristics of an inverse V-shape reversal, as the one seen in the pair, is that it leaves the side caught wrong-footed vulnerable and more often than not, they tend to close positions to limit further risks, which only increases the short-side pressure. Therefore, in the scenario that the pair were to find enough traction to see a bounce towards 1.2950, one can find up to 3 horizontal levels of reference to engage in short-side selling. It's always a balancing act to decide which level to engage in the first place.
Large institutions tend to scale into a position at various price levels, which in this particular case, would be from lighter into a heavier sell-side commitment from 1.2950 up to 1.2990/1.30. If price were to find equilibrium above the 1.30 area, it would most a sign that buyers have regained strength and are ready to resume the uptrend in prices. Remember, trading GBP carries heightened risks of being whipsawed by Brexit headlines, so one must exercise extra caution.
To start with, one must understand the state of play in GBP first, with the 25-delta 3m RR + large net short position in GBP futures, suggesting a lot of pessimism has been priced in, which essentially means that any positive Brexit news run the risks, as seen, of having a far greater effect to the upside vs negative headlines to the downside, as perma bears get trapped wrong-sided.
In the USD, it's now all about the re-pricing of Fed hikes, with the market starting to consider that the ed may continue the pace of rate hikes of one every 2-3 months until mid 2019, as the data seems to justify up until this point. The surge in wage growth in the US to 2.9% y/y was a watershed moment, as it means that the tightness of the labour market, after all, is starting to be filtered into higher salaries. Thusday's US CPI may be the stroke that breaks the camel's back for a new belief in higher US inflation, which should be interpreted as the icing on the cake and a precursor of more USD strength in H2. For now, the hammering of the UK vs US yield spreads communicates that the market risk is skewed towards the downside.
The characteristics of an inverse V-shape reversal, as the one seen in the pair, is that it leaves the side caught wrong-footed vulnerable and more often than not, they tend to close positions to limit further risks, which only increases the short-side pressure. Therefore, in the scenario that the pair were to find enough traction to see a bounce towards 1.2950, one can find up to 3 horizontal levels of reference to engage in short-side selling. It's always a balancing act to decide which level to engage in the first place.
Large institutions tend to scale into a position at various price levels, which in this particular case, would be from lighter into a heavier sell-side commitment from 1.2950 up to 1.2990/1.30. If price were to find equilibrium above the 1.30 area, it would most a sign that buyers have regained strength and are ready to resume the uptrend in prices. Remember, trading GBP carries heightened risks of being whipsawed by Brexit headlines, so one must exercise extra caution.
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👉👉 Join The OFA Inner Circle:
📓📓Learn Order Flow like a PRO:
ofa-course.com
🧑🏫🧑🏫 Author of the #1 Order Flow Script:
tradingview.com/script/WhQSEfKT-OFA-Order-Flow-Analysis
📧📧 DM me if doubts (100% response rate)
📓📓Learn Order Flow like a PRO:
ofa-course.com
🧑🏫🧑🏫 Author of the #1 Order Flow Script:
tradingview.com/script/WhQSEfKT-OFA-Order-Flow-Analysis
📧📧 DM me if doubts (100% response rate)
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.