GBPUSD

Thanks Doblece - Always prefer the explanation, am not one for the teaser.

I've been playing with some trendlines and channels. Basically I see the technical target on the break of the channel has been made which was around 500 pips. Of course we can see another breakout but I really think if it happens it would be something like the headfake on January 23.

Since this is a long term forecast I wouldn't even think of going long at these levels. A short would be an agressive trade. The best trade in my opinion is to buy the dips.

Just my 2 cents

GBP/USDDaily Pivots: (S1) 1.0020; (P) 2.0075; (R1) 2.0140; MoreCable's treat from 2.0132 continues today. With 4 hours MACD staying belowsignal line, the fall from 2.0132 should still be in progress and furtherdecline should be seen towards 1.9877 support. Break will put short term risingchannel support (now at 1.9752) in focus. On the upside, above 2.0095 minorresistance will indicate correction from 2.0132 has completed and bring retestof this high. In the bigger picture, rise from 1.8090 is interpreted as having first wavefinished at 1.9142, subsequent second wave correction completed at 1.8517.Third wave rally has completed at 1.9913 while the fourth wave correction hasalready ended with three subwaves down to 1.9183. Current rise from 1.9183 willlikely be the final advance of this rise from 1.8090. The channeling propertyof the terminal points of 1.9142, 1.8517, 1.9913 and 1.9183 is supporting thiscase. Having said that, resistance should significantly increase as cable meets2.0106 (92 high). With bearish divergence condition still being displayed inweekly RSI as well as daily MACD, risk of medium term reversal willsignificantly increase. Hence, focus will be on reversal signal as cableapproaches this zone. Break of 1.9723/26 support will warn that the rise from1.9183 has completed and put rising channel support (now at 1.9394) back intofocus. However, a strong break of mentioned 2.0106 resistance will path the waytowards 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05low) at 2.0677.

Don't take the fibos out of their original calculatons. They are set to catch s/r lines that you may not have caught. The way you use fibos is the same way you use, pivots, MAs, etc: as support and resistance lines.

I'm sure you are giving us good information, however it's unintelligible. When anyone is attempting to teach, they must always do it in the most fundamental manner possible.

http://www.forexfactory.com/images/icons/icon1.gif GBP/USD Overpriced?
Let's See if the GBP is Overpriced or Not:

We'll base it on interest rate differentials and what you'd be paying per basis point to capture the extra interest on a 10 yr UK Gilt vs a 10yr US T Bond.

According to BB, the is a 38 basis point differential right now. The GBP is currently 2.039, so you're paying $2.04 to capture the 38 points. On a per point basis, that's around 5.4 cents/basis point.

Now I don't have the exact gilt and bond figures, but the the GBP hit 2.44 back in Nov 1981. UK interest rates were in the 17% area while the Fed rate was 15.85%. That's a 115 basis point difference and roughly 2 cents/basis point.

Costs a lot more to capture the difference now then it did back then. Note these are nominal figures, unadjusted for inflation.

Let's compare that to AUD rates. Right now, there's a 129 basis point advantage in 10yr Aud gov't notes compared to the equivilent US Treasury. I can buy AUD now for .8378-call it 84 cents. The cost per basis point is around 6/10ths of 1 penny-less then 1 cent/basis point to capture the difference. On the face of it, it seems like the better bargain.

From BB:

The pound rose as high as $2.0133 on April 18, the strongest since June 1981, as the fastest acceleration in U.K. inflation in a decade prompted investors to anticipate two more interest-rate increases from the Bank of England this year. Traders are also boosting bets the Federal Reserve will lower its target for overnight loans between banks, spurring demand for pounds.

IMO-these traders are wrong on 2 accounts. First, the BoE will not raise twice more. Why? Because they've said they won't, based on their own inflation projections. Be aware that they projected inflation to spike up-which it has-and then turn lower with rates going only to 5.5%. Second, the Fed will not lower interest rates this year. Why? They have an inflation bias, inflation has worsened so far this year, they've projected inflation to trend down later in the year and it will take months for it to trend down enough so that the Fed moves to even a neutral bias. And even at that point, growth will have to be anemic for them to lower the rate and by their own projection, growth looks to pick up by then.

So what's a possible trade for us?

While it's true that economists don't make good traders, it's also true that traders are not economists. What we're looking for is the time when the projections look to be correct AND traders start believing them. This is what happened back in November when traders started to believe in what the Fed had been saying for several months, that inflation would trend lower (and therefore rates would not be going up). If you shorted $'s at that point, that info was worth about 900 pips.

So this doesn't mean to run out right now and short the GBP/USD pair becasue it's the traders who have control of price. Traders are wrong and they may continue to be wrong for some time to come. There's alot of momentum against the $ so cable does figure to get stronger still. The BoE will be raising the rate to 5.5 at the next meeting.

The time to short the pound will come some time after the next UK inflation report IF inflation comes out lower AND we have further statements from the BoE that indicate they're using the same inflation projection as they had in Jan and Feb. Couple that with US data showing growth to be picking up and inflation trending down (if that happens) and an excellent chance to short the GBP will exist. A perfect situation will be the case of US growth picking with inflation still above target.

When could all this be set up? Fed and BoE projections figure things will play out like this in the second half of the year. I'm basing the future on what the economists at the BoE and Fed think, not on what traders think. I wouldn't venture even a guess on what the economy will do. Why should I, when I have the top economists in the world doing it for me?

Maybe we'll get lucky and the pound will look like 2.3 or 2.4 when it happens and it will be ready to return to a more normal 1.96-1.98 level.

If the projections of the best economists in the world are correct, a good chance to make some real pips will be there.

I have another thread in the News Trading Room if you're interested in reading about this and other things:

http://forexfactory.com/showthread.php?t=25943

I totally agree. You have no pivot levels on the upside to target your trades with. However, the downside offers promising possibilities.

"The big economic story of this week, was of course, the massive jump in inflation, which triggered Mervyn King‘s first letter to Gordon Brown in 10 years.
(If you want to read the letter and the Chancellor’s reply in their full unalloyed glory, by the way, just click here: http://www.bankofengland.co.uk/publi...s/2007/044.htm)
Suddenly all the pundits have started talking about how the Bank has kept interest rates too low for too long, and that this inflationary burst was inevitable (The Times writer Graham Searjeant wrote a particularly good piece in this vein - if you missed it, it’s well worth tracking it down on their website).
Of course, this is something we’ve been saying for years, though it’s nice to everyone catching up, even if it‘s a bit late now.
But slack monetary policy is far from being a problem exclusive to the UK, as yesterday‘s China-induced tremors in the market showed …
A shiver went through global stock markets briefly yesterday, as China’s economic growth once again stormed in ahead of expectations, at 11.1% in the first quarter, leading premier Wen Jiabao to announce plans for a further crackdown on lending.
The Shanghai Shenzhen index fell nearly 5%. Mr Jiabao said: “Loan growth is too fast.” Inflation is now at 3.3%, the fastest rate in two years, and money is still being piled into building industrial infrastructure that no one really needs. Meanwhile, millions of Chinese are opening trading accounts and diving into the stock market, as a rampant case of genuine casino capitalism overtakes the populace.
As Damian Reece says in The Telegraph: “You don’t have to belong to the Austrian School of Economics to know that mad levels of investment, especially when orchestrated by commissars for political purposes, invariably end badly.”
Part of the problem is that the Chinese currency, the yuan, remains artificially cheap. All the money flowing into the country is fuelling the boom.
Reece suggests that the regime should “bite the bullet now” on yuan revaluation. Of course, as Reece acknowledges, this would lead to carnage in the countryside as farmers would go bankrupt in the face of cheap grain imports - “it is far from clear that the Chinese Communist Party could survive such an event.”
This is probably the reason that the government is trying to find other ways to slow the damaging growth in its investment bubble, such as tightening lending requirements - but as our own Bank of England has found out, if you keep trying to put off the tough choices until tomorrow, the problem you‘re attempting to escape just gets larger and larger.
Of course, at least in the UK, and even in China, they have a choice. Some countries don’t even have the option of setting their own rates - and Ireland‘s population is on the verge of finding out just how vulnerable that can leave you.
The country’s central bank (effectively now a branch of the European Central Bank) has warned that the outlook for growth is much less cheery than its bosses over at the ECB think. And it’s little wonder they disagree - while Germans might be enjoying something of an economic revival, the massively over-indebted, mortgaged-to-the-hilt Irish are looking at inexorably rising interest rates with a sense of disbelief.
Personal debt in Ireland, at 190% per head, is the highest in the developed world, as bank lending and house prices have soared. “The reason Ireland (and Spain) have seen such fast credit growth is that interest rates have been too low,” Richard Fox of Fitch Ratings tells The Telegraph. “It’s the consequence of the one-size-fits-all policy.”
The trouble for Ireland and its “Club Med” peers is that when the European Central Bank looks at the correct interest rate for the region, it’s much more interested in what matters for Germany, than for the smaller members of the Eurozone. And right now, Germany’s doing rather well, thank you very much. So it looks like there’ll be no relief coming from that direction.
Of course, controlling your own interest rate isn’t much good if you don’t make use of it. MoneyWeek regular James Ferguson points out that even while the press are now gingerly suggesting that we might see a 6% interest rate, the truth is that the last time inflation was this high, the UK base rate was closer to 7% to 7.5%. Could it go that high again? It looks like we’re going to find out."

The $2 Pound is What's on Everyone's Mind:

That and how long $2 will hold. The pound is likely to range trade with a bearish tinge going into Wednesday's UK GDP report. How does that look to be coming out? Let's go to on of the best sources of UK data projections, the NIESR.

The National Institute of Economic and Social Research is THE major economic think tank in the UK. The BoE is one of their subscribers and they've accruately estimated things like interest rate movements and GDP's for years. Anyone can subscribe for free to their monthly newsletter and here's what they have to say about the latetest GDP number and direction of UK rates:

"We project that the output of the economy in the three months ending in March was 0.5% higher than in the previous three months. This follows a revised figure of 0.5% for the three months ending in February. Underlying this change are estimates of growth for both public and private sector services which are lower than the rates prevailing late last year. This press release is produced ahead of the interest rate decision. However our view is that, despite the deceleration of economic growth, an interest rate increase is needed because of the presence of underlying inflationary pressure in the economy".

The salient points are a slower GDP then the consensus estimate and ONE more rate increase. not 2, as the market has been pricing in.

Now nothing is 100% garunteed and there is error in every estimate, but my thinking in the next couple of days leading up to the UK GDP is to look for chances to short the GBP on spikes in price and hold those positions into the UK GDP report, since there's an excellent chance of the number being below consensus.

After the Uk CPI number, the GBP/USD had a peak of 2.0067 and a low of 1.9989 with the close at 2.0033. A smallish short looks good to me now and I probably will short more if it goes into the 60's again. I don't see price going much higher then that ahead of the UK GDP estimate, however I think it very possible that a 40-50 pip price reduction could draw some buyers into the market.

This may work better for me then for you-if a 40-50 pip drawdown is gonna cause you to lose your hair, then perhaps you'd better wait.

River, where i can read your blog ?

www.theviewdownriver.com

The market ended about where it started today and the analysis is the same with the exception of updated River levels. The monthly PDA indicates a move down is on the horizon but we want to err on the side of caution with longs until the market builds value below River.
Price closed above the River level of 9912 on Tuesday so short trades continue to be aggressive.

Long Strategy
If we get an hourly closes above 2.0074 set longs for 2.0168, then 2.0235. Exit on a push into this level. Risk can be a close back below 2.0070.
Traders can look to set new longs on a push down through River at 9912 and in front of 9873. Risk would be an hourly close below 9873. Target is 9972, then 2.0070 where all longs should exit.

Short Strategy (Higher Risk)
If you are short, stay short. Risk continues to be an hourly close above 2.0070. Target is River at 9912. Exit here.
Traders can look to set shorts on a push into 2.0070 if we do not move above. Risk would be an hourly close above 2.0070. Take partial profits at 9972, then look for 1.9912.

http://www.theviewdownriver.com/stor...d4-25-2007.PNG

The market moved down today and shorts should have exited for profit at the River level of 9911. The market also gave you the opportunity to set longs on the push down through River.
Price closed just above the River level of 9877 so short trades continue to be aggressive. Our long position guage is now at neutral. Expect volatility on hourly closes while River is being resolved.

Long Strategy (Neutral)
If you are long, stay long ahead of River at 9877. Traders can look to set new longs at 9877 also. Risk would be an hourly close below 9873. Take partial profits at 9972, then look for 2.0022/70 and exit completely here

Short Strategy (Higher Risk)
Traders can look to set shorts on an hourly close below 9873. Setup on a push back to this level. Risk would be an hourly close above 9877. Take partial profits at 9751, then look for 9700 and exit completely here.

http://www.rivertheory.com/storage/gbpusd4-27-2007.PNG

Awesome

The market pushed down to our long entry level on Friday and then rocketed up around 170 points in a volatile session. We did get a close 5 ticks below 9873, so you may have exited your longs. I hope you were able to re-enter if this occurred.
Price closed just above the River level of 9897 so short trades continue to be aggressive.

Long Strategy
If you are long, stay long ahead of River at 9897.Traders can look to set new longs on a push into River at 9897 also. Risk would be an hourly close below 9873. Take partial profits at 9972, then look for 2.0052/70 and exit completely here

Short Strategy (Higher Risk)
Traders can look to set shorts on an hourly close below 9873. Setup on a push back to this level. Risk would be an hourly close above 9897. Take partial profits at 9781, then look for 9700 and exit completely here.

http://www.rivertheory.com/storage/gbpusd4-30-2007.PNG

Nothing is impossible!!!!!!!!!!!

Great River, DownRiverTrade......... So whats next now ?

I see 2.0168 line in your chart above. What was that for ?

So waiting his new post....

Please note that I have made adjustments to both the static levels (black) and the dynamic River levels (blue) based on the price action over the last 5 weeks. The static levels will be fixed for approximately 4-5 weeks depending on volatility.

Our long strategy worked perfectly. Longs should have exited at 2.0070. (Actual High was 2.0071). Price moved down from this level.

Price closed just below the River level of 2012. I consider bias at neutral until the River level is resolved. We want to focus on this level to indicate our next directional move. Traders may wish to stand aside until direction is clearer.

Long Strategy (Neutral)
Traders can set new longs on an hourly colse above 2.0062. Risk would be an hourly close below 2.0040. Target is 2.0220. Exit completely here.
Traders can set longs on a move down to Transition the first time down at 9904. Risk is an hourly close below this level. Target is River at 2.0012. Exit completely here.

Short Strategy (Neutral)
Traders can look to set shorts on a push into River at 2.0012. Risk is an hourly close above 2.0040. Target is Transition at 9904. Cover shorts here and set longs per the Long Strategy above.

http://www.rivertheory.com/storage/gbpusd5-2-2007.PNG

DownRiverTrader, you always post strategi for long and short.

I sometimes confuse to choose, this is big problem for me. ( i believe every bodi problem) .

Can you post the prefer way ........or to choose.