This morning’s fundamental news for sterling gave us all some interesting trading lessons. The first is the extent to which any fundamental news release related to interest rates can ambush the best prepared trader. Second, the extent to which central bank policy can, and does, flip flop from one month to the next. And as I commented to a fellow trader the extent to which central bankers simply speak out of both sides of their mouth. Third, and last, the impact a ‘local’ economic release can have on the home currency, irrespective of what is happening on the counter party currency.
The above lessons all relate to this morning’s price action for sterling, following the release of UK employment data and subsequent statement from BOE Gov Mark Carney who, in effect, not only moved the goalposts regarding a rise in interest rates, but moved the pitch as well! Apparently, the housing bubble in the UK is no longer of concern as focus has shifted to the lack of wage inflation. Indeed, for the more cynical amongst us one wonders whether next year’s election has played any part in this shift in emphasis for the bank. All of the above simply reinforces just how difficult trading is at present and the power of central banks to dictate and manipulate their home currency. Cynical, but true.
From a technical perspective the September contract for GBPUSD moved sharply lower as a result, breaking through the potential support platform in the 1.6740 region and trading (at time of writing) at 1.6715 – falling almost 100 pips on the session. Given the strength of this move it now seems increasingly likely that the 1.6660 area will be tested soon, and if this fails to hold, then 1.6570 becomes the next logical target. The rally higher of the past two days was accompanied with only low to average volume suggesting weakness in the rally even before today’s news releases. In the short term the outlook for cable remains bearish and driven heavily by negative sentiment for the British Pound, rather than positive US dollar sentiment – for today at least. Any reversal higher will need to be preceded by ‘stopping volume’ and in addition, and almost certainly, an extended phase of price consolidation, before any reversal can take place.
By Anna Coulling