Auslanco - GBP/JPY and GBP/USD (newstrade)

Not to overpost ... but in the interest of learning, I've noted these guys before. This one is a very good read, at what I and many believe to be a pivotal turning point in the market. (direction of course to still be confirmed) I've highlighted some of what I think are key points. Enjoy.

Risk and Demand Say Goodbye To The Dog Days Of Summer

Global equity (read risk) trade has played out in September the same way that the previous ten months have done in following the sentiment set by Non-farm Payroll trade direction. This month however is showing a weakness that may impact forex movement as the month unwinds that can be seen in the way that Asian equity trade is dragging on daily sentiment, as the Japanese Nikkei struggles to hold upside tests of resistance.

The pattern is creating very tight Asian session trading ranges, on extremely low participation levels, that only allow breaks to easily hold in reaction to re-flag economic releases or sound-bite headline news. The equity futures markets are attracting speculative interest that look to balance exposure three times a day, but that is not transposing itself to the same amount of buyers or sellers in each regional cash trading session.

The consequence is that volatile periods of sporadic trade are taking place that struggles to break the previous session high or low whilst each regional market is open, or at worst the ranges are broken but are then unable to hold going into the close. The pattern is reflecting a famine in global yields, and revealing a complete distrust from most market participants of the ability for exchange traded floors to get through a session without suffering a high frequency trading blast of algorithm trade that then fails to follow through.

High Cost
The cost of doing inter-bank business and the amount being asked in spread to insure trade between financial institutions has lead the moves into bonds, and created huge outflows of investor funds from global equity markets. Current market mechanics and trading patterns have added to the intra-day volatility and are something that only one thing will be able to address and possibly reverse; an increase in institutional volume, which is something that history tells us that will be hitting soon.

September has a reputation for creating price action mainly because of the October mutual fund year-end in coming into focus, with institutions having just two months to balance portfolios and create/protect yearly gains. By default, the next six to eight weeks of trade will draw in equity volume and is very likely to lead to moves in the forex market that will be sustainable, and will create a market that is more likely to move as one in trade against the Usd.

Goodbye Summer
The summer months have created opportunities each day for traders, but outside of Jpy and Chf the major currencies have held very tight June-September ranges. That is something that will change as September unfolds, and the likelihood is that the 4-hour trading ranges and trend/momentum reads will soon get aligned across all global markets. The indecision and knee-jerk reactions to headline news and economic releases will not go away, but will be tempered by trends that form and hold for more than a few sessions at a time.

Whether the moves will be long-dollars, short-dollars, or a combination of both is not important to know while global markets are so thinly traded, because as the markets are currently showing, the transition from Asian to European, and then into U.S. trade are happening on light enough volume that a one-day trend is all that is on offer at the moment.

Do Not Cloise Your Eyes
In the current blink-and-you-miss-it environment the need to bank early and often is dominant, but again, that will change, and sooner than most think as the market sets up a lot more trades that signal, break, hold, and re-signal in the same direction. A new rule-book is being written in regard to internal market mechanics but it is struggling to navigate a written path through the algorithms and coding that have been seen to dominate in the post-subprime environment, and is something made all the more difficult to complete when inter-bank credit pipes are still frozen.

The inverse correlation between equity risk and commodity demand going higher as the Usd goes lower, and vice versa, is running at very high percentages, but as forex traders have seen all summer the days that equity trade moves lower the long-Usd buying is not as strong as the days that equities move higher and the Usd is sold.

Holding long-Usd positions reflects the move to Usd based Treasuries, in a global that market is being starved of yield, but long-Usd positions do not look to reflect a belief in the ability of the U.S. to easily morph out of the contraction phase of the current business cycle.

This is a traders market, and in reality it has been for over a decade as the buy-and-hold strategy died a slow death from 1999-2009. The question now is how soon will the transition into a mid-term trend happen, and until that signals the answer will be to keep banking early and often, pull stops up after hitting target one and two, and buy support or sell resistance at the highs and lows of the previous session.

Resistance Holds
Equity markets are struggling to break and easily hold higher, with the global equity litmus test coming from S/P trade holding 1110 and 1095 support areas. If those price points hold, the Usd is likely to lose ground, especially against Chf, Jpy, Aud, and Cad. However, if equity trade drops the S/P under 1075, the German Dax under 6100, and the Japanese Nikkei under 9000, the long side of the Usd will be seen. ...

my longs from last night didn't work as expected... got out @ b/e.

looks like u-j is making the play for now; g-u is ranging bu slowly moving down towards 5270.

atm, resistance is around 129.30/130 and selling the rallies seems to be safer. unless i see any solid confirmation (break of the above mentioned area), i will stay away from longs.

p.s. and here's the chart.

p.s.2. where did everybody go anyway?

Looks like USD weakness is the major play today ... UJ making new lows every hour. That seems to be reflecting as strength within sterling and lighting a fire under EURUSD - it's been ages since it's seen a 60 pip M15 bull bar! I've not been paying close attention to EURUSD and VSA, but I think many were seeing weakness there, when it was really buying! Good news too is that UJ lows are not being reflected in GY, hence some chance of strength/stability.

And oh, look at that USDCHF tank.

It has been getting better in the last month or so.

i would post more but i am extremely busy at work and until mid november nothing's gonna change for me.

I hear ya... I'm trying to start posting on the blog a bit more, but I think it's going to migrate towards a weekly update type of thing instead of trying to post every trade. There just isn't time for the detail I like to include.

I had some premature longs too, that drew down more than I'd like, but they're back now. Funny, err, hate how fx is like that ... !

Few predicted 1.555 on cable - how can you, when the movement is at the expense of the USD, which so many expect, but few are prepared when it materializes!?! If/when the UJ recovery begins, we could see GY head even beyond the current 129.32 DPP it just touched, since I think we're seeing yen weakness finally!

Strange how you expect the big moves, but, then they come, and it's hard to place you're either in that moment, or, have the coldness to act! Hope everyone's made lots'o'pips today!

alright, looks like a breakout for pound. should go up to the blue area first - 1.5725 (+/- 10 pips or so).

its market is going to crash one more time..possible between end of this month to 2nd week of october ?

yen weakness? not sure about that. we just marked a fresh low on u-j last night... (lowest in 15 years, that is).

p.s. chart attached - not that you need it... looks just like a big mean downtrend machine.

Just meant temporary short term weakness/resistance, nothing confirmed ... and perhaps hoping for more, based on the political unfoldings in Japan.

everything points down... even short term tfs...
when i look at this chart i actually am sorry i don't trade u-j... would have made a killing for the last couple of months.

USD getting weaker and GBP getting stronger.

Clearly UJ is ominous, technically and fundamentally. I was referring though to a possible yen strength change, based on resistance.

I have a bit of a phobia with trading UJ: never perceived it much for pip/swing values, and I got burned on it when it rocketed to that ridiculous 94/95 earlier this year, on a very small lot size. It's more of that type of currency that if you can enter it well and predict the right direction, AND excercise patience as it swings around your profit, it can be a good trade. Still gotta get to that patience point.

Wow, look at EURUSD go - I got an embarassing piece of the swing up, but it must be making rock dust of anyone trying to short it - 1.3025 and rising! Looks like we may be back to the heydays of 200 pip swings! It's all about overall market sentiments - gotta go again read that LFB posting that I put up a few pages ago!

Don't submit to getting fooled into GBP strength; IMO it needs to travel this distance based on it's own merit, whereas today it (and other USD cross pairs) are getting there based on the $USDX selloff. If GU can breach it's last 1.56x high to that 1.57 area on it's own, then I might be a little more convinced.

correct. however, 1.57 area seems just about the right place for considering shorts... might even go for stop hunting there and then back down again.

even usd has not convincingly broke upwards for good, imo. i am waiting for 1.3050 area and if that one is taken then yes i will go long all the way to 1.37. otherwise... down again.

planning to short from upper TL if it goes their

The DOW is giving up all it's gains, but we seem to be holding these levels quite well on GBP/JPY. It'll be interesting to see how we finish the day (assuming it's not technically done already).

Hi...

GBPJPY is a difficult pair to trade but can be rewarding if done correctly.

It has been in a downtrend. But i'm wondering if the following support a short term trend reversal.

1. Higher inflation than expected in the UK supporting a possible future interest rate rise.
2. Retracement in USDJPY.
3. Double bottoms in GBPJPY.
4. Todays very bullish candle (hammer).
5. Bullish Wolfwave.

Any thoughts...