Week 18

[cowpip 10]

Torero, I think we all deserve to tip our hats to you for maintaining this thread. It's an important one and deserves to be maintained. Here's a brief(ish) review of the summary that I perform each weekend to help me stay focused on the configuration of the "playground" for cable. I'm not an economics expert, or anything like that. But I do try to follow the fundamentals as closely as the technicals.

 

Evidence continues to mount that the U.S. economy is slowing. Advanced Q1 GDP on Friday took a bit of a nose-dive, with a below-consensus read. As I said, I'm no economics expert, but it seems to me as though there is underlying strength imbedded within the Q1 GDP report. I wouldn't be at all surprised if we saw upward revisions in GDP and downward revisions in inflation contained in the report on 31 May. But until then, we must digest what we have - and what we have indicates a continued below-consensus slowing of the U.S. economy.

 

Conversely, the UK has shown continued resilience, with surprisingly strong inflation reports and slowing (but still growing) housing activity. It is no wonder that cable has been trending higher.

 

So, which way is the herd moving this week? To determine this, I look at the weekly and the daily charts. The price action on the weekly chart (not shown here) is clearly up. This last week we saw some consolidation and retracements following the break of the multi-decadal highs.

 

Of particular interest on the weekly chart is the inside bar that has formed. In addition, the computed weekly support and resistance levels nicely correspond with the upper and lower wicks of the last two weekly candles. This therefore establishes a range through which any break could trigger some more substantial follow-through.

 

Since the daily chart (below) shows an established rising trend channel, I am currently in a bullish mood of buying dips.

 

 

I apologize for some of the obtuse trend lines I've labelled that will have no meaning to those reading this. They're taken from previous analyses I've done, but still have worth, in my opinion.

 

I am currently targetting the area around 2.0370/2.0390 as the upper edge of the next leg higher. That zone corresponds nicely with the fib extension targets (shown) for the 3rd wave. Also, the 50% fib of this projected target fits nicely with the currently formed resistance at 2.0134ish, which suggests that after the fib target is met, a retracement to that level would offer support. This is all based upon the assumption that Friday's price action reached the low through which the next leg will commence. And based on the confluence we now have with this fib extension, it's 50% retracement line and formed resistance at 2.0134, we may now have more of a basis to believe that prices will begin ascending toward the target perhaps this coming week. I wouldn't expect a quick shuffle up to the target, specifically because the upper-channel will probably prevent prices from reaching the target until the week of the next BoE meeting and quarterly inflation report (all due May 10th). But gradual steps higher are certainly possible, and perhaps a more probable outlook.

 

The 4-hour chart below illustrates my shorter-term thinking.

 

 

I like to use the bollinger bands to aid my analysis, although they are used mostly to help me see where there may be greater support/resistance.

 

The activity on Friday was a good example, where the 4-hour pin-bar formed at known support on the lower channel boundary, at the lower bol boundary and at the 50% fib retracement line - easily sufficient support to justify a long entry. By way of interest, that zone is now also this week's S1 pivot support line.

 

The way I see it, a break above the weekly R1 pivot resistance line (where a bunch of stops and buy orders are almost certainly also clustered) should propel cable toward the current 2.0134 high. If 2.0134 is broken, there is very little except minor resistance toward my larger target.

 

The fundamentals could also support a move higher this week if the Fed's preferred inflation measure (PCE) comes in at or below consensus, or if the employment report on Friday indicates weakness. It will probably be very difficult for the NFP report on Friday to best the results seen in April. Topping 180,000 is unlikely, and most consensus forecasts I have read thus far are far lower (100/130k). Perhaps we will see a retrace in the numbers this month following last months blockbuster numbers. If so, that would further support cables push higher together with rampant speculation that the BoE will hike rates the following week.

 

All is not entirely bullish for cable, however. There are reports this coming week that will probably be mediocre for cable. They probably won't be bad, but the consensus suggests some of the indices will slow. But since the markets are still being dominantly driven by interest rate differentials, those reports will probably just add to an air of consolidation.

 

The cable bears are looking for some decent negative prints that will give them a reason to thrust cable below the last two week's lows and below the weekly S1 pivot level. A move below there would certainly be bearish, in my mind, as it would also break the lower end of the rising trend channel we have seen since March and may mark the beginning of a top on cable, particularly if the data were to provide the BoE with a stronger reason to consider pausing after May's anticipated rate hike.

 

The way I see it, cable's ascension above 2.0 will be only temporary. The UK is not that far from implementing a longer-duration "wait and see" approach to interest rates, and as soon as the market gets a wiff of that in the air, cable will likely return back below 2.0. Combine that with the anticipated drop in inflation (if the BoE projections are correct) in a few months, and cable will likely relax some more.

 

So that's my analysis for this week.

 

Good trading to you all!

[torero 10]

Hi cowpip, good to have you back. Without the others it's a bit dull but forex continues so will I. Did you post any chart? Not following you too well without charts.

[cowpip 10]

Hi cowpip, good to have you back. Without the others it's a bit dull but forex continues so will I. Did you post any chart? Not following you too well without charts.

 

I did post charts. I can see them imbedded within the posting I posted. I wonder why other's can't see them? Hmmm... I must have done something wrong.

[cowpip 10]

Eeek! I used a different browser, and the charts are now gone. Hmmm... Now what did I do wrong?

[cowpip 10]

I edited my original post. Is that any better? I have no clue why the attachments disappeared. Maybe I took too long to post the message while first editing / typing it.

[milliard 10]

Charts are showing up fine on my screen Cary.

 

Nice (self) analysis there on the Cable positioning. Hope you can turn a cent or two out of it.

 

Andre.

[cowpip 10]

Thanks, Andre.

 

Is this price action ever boring today with much of Europe and Asia in holiday mode. Zzzzz....

 

Andre, I've heard rumors that the barriers between 3680/3700 on EUR/USD are quite large. I'm not sure if that's true, but it's fairly obvious 3700 is being defended. Have you (or anyone else) heard anything concerning the expiry dates on those barriers?

[milliard 10]

Considering the importance of the level, the weight up there will be significant Cary.

 

I wouldn't worry too much bout them to be honest. Play your own game & be aware of the levels etc. Let those defending them stress themselves out as price gets bounced around the outer strike regions.

 

There's always someone defending one or other of these Big Figure zones, after a while it gets awful boring.

 

Keep on pumping the pullbacks till she rolls over & stings ya

[torero 10]

It is an all time high so I'm sure every big dog is watching it for clues. It's amazing that everyone watches everyone else to make the first move. I can only assume the suckers are the first to draw? Or smart suckers with deep pockets to start a movement? I'm on sidelines until this battle declares a winner. Been boring, yes, but history is about to be made! That's exciting!

[cowpip 10]

I wouldn't worry too much bout them to be honest. Play your own game & be aware of the levels etc. Let those defending them stress themselves out as price gets bounced around the outer strike regions.

 

There's always someone defending one or other of these Big Figure zones, after a while it gets awful boring.

 

Keep on pumping the pullbacks till she rolls over & stings ya

 

Thanks for the advice, Andre. That's precisely what I've been trying to do. The pull-backs have been profitable enough to pay for the eventual and unavoidable sting (and then some).