GBP/USD Perfect 50% Retracement Off NFP

[DannyBly 10]

Fib retracements can work particularly well in periods of increased volatility - such as we saw this morning with the Employment Report. The following is a classic example - GBP/USD retraces to 50% of the initial upmove after the numbers came out - entering long at the 50% level something of a 'gimme trade' IMO

 

[cowpip 10]

Nicely done, DannyBly. The 14-ema on the 15-min charts also coincided with the 50% fib, which was nice confluence. Price action on the shorter time-frames also helped signal the bounce off of that level. It pads the 'ol account nicely, doesn't it?

[ztrader 10]

Yes, it was a nice "gimme trade" after the news. I took mine off of a bounce on previous resistance/now support which may possibly coincide with a fibonacci level. Nonetheless, I am glad to have caught it right around market opening of US exchanges while I went short on YM and ES.

 

ENJOY

 

ztrader

[torero 10]

Yep, I took that dip as well and stayed until before the close of the NY session (no weekend holds for me for now).

[cowpip 10]

Yep, I took that dip as well and stayed until before the close of the NY session (no weekend holds for me for now).

 

Cool, you guys. You did very well on cable. I personally focused on $/yen and rode it down. If oil stays up on Monday, any retracement might be on the shallow side. There is usually a retracement the following Monday or Tuesday after NFP (sometimes a full reversal). But I think this time the main trend will be reinforced and the downward movement will resume. Uncertainty regarding financials, oil, politics, and Bernanke's failure to keep the dollar suspended will probably keep the yen on the side of strength.

 

Cable, on the other hand, is a different story. I can still see cable whipping around rather violently since the UK is not that different (in terms of their immunity from the credit crunch) than the US. Their economy is also likely to suffer fairly badly as the stress continues. I can see other pairs having greater predictability than cable. But that's just my 2 cents.

 

Here's a scenario worth watching. It isn't likely to play out yet, but the first hints are starting to form now. If the Euro zone concentrates solely on inflation and if they are heartless towards employment (after all, price stability is their sole responsibility, unlike the FOMC), member countries who are really starting to feel the pain may be decimated to the point that they start arguing about bringing back their own currency and replacing the Euro with it. I can see several countries (Greece, Spain, Italy and France) who might start publically debating the worth of staying a member of the Union. All it would take to seriously destabilize the euro is an effort from a few of these countries (preferably simultaneously) to start talking about resurrecting their own currencies. Yes, it would be expensive for them to do this, and the short-term pain may be high, but let's not forget that the Euro Union still does not have a ratified constitution and none of the countries are obligated to stay in the Union permanently (as I understand it). If any one of these countries threatened to jump-ship, the Euro could become significantly devalued against the other currencies. I would imagine in this scenario, the yen and the U.S. dollar would win.

 

I can see where it wouldn't take too much more pain at the gas pumps combined with rate increases by the ECB to really start this type of snowball from rolling down the hill. And once it starts, it may be hard to stop. Euro/Yen could fall hard in these events. Of course, these are long-term outlooks, but must nonetheless be considered in the backs of our minds if we are going to take advantage of these things.

 

At the very least, this is an interesting possibility that could seriously erode the strength of the euro and boost the strength of the dollar. What would that do for inflation, I wonder?

[torero 10]

I don´t think anyone in Spain is even debating about going back to their own currency. The last time the housing market crisis back in 1994-1995 happened because of the 15% inflation but since with the Euro, the inflation has been in check so I don´t think the housing market is as bad as the last time. Way too many advantages to unglue now.

 

Of course, oil wasn´t part of the equation. I think there´s still room to maneuver for the gov´t. The prices at the pump is 30% or so more is due to taxes so there is still room to reduce it to lessen the worries. There has been talk of consumer cutting down consumption by not traveling far on their holidays this summer or outright not going on vacation.

 

For the moment, I don´t correlate oil to the currency fluctuations but of course it could be ignorance and naivety on my part.

[cowpip 10]

You're definitely closer to that situation than I am, Torero. My thoughts were just thoughts, and although I still think it's remotely possible, it may be far more remote than I am thinking.

 

As for oil and currencies - you only have to look as far as Friday to see possible correlations between oil and currencies (and other markets). I believe it really was oil (with some contribution from unemployment results) that caused much of the dollar fall. Of course, there's no way to prove it, but when the entire market is fixated on one item, effects of that item will move the market. I'm not saying it was the sole reason for the dollar fall on Friday. That would be ridiculous as there are a myriad of other things that move currencies. But oil had to be a part of the equation, imo.

[torero 10]

What struck me on Friday was GBPUSD went up while GBPCHF went down. Seems the market is diverging giving signs in money moving unilaterally (I think?). Any idea on this movement?

[Trader333 10]

For the moment, I don´t correlate oil to the currency fluctuations but of course it could be ignorance and naivety on my part.

 

In mine and many others view the weak dollar has helped fuel the rise in oil prices. However, there is no real difference in demand compared to that of around 8 months ago when the price was below $80 and in fact demand has declined. In many ways the rise is not unlike the tech boom bubble a few years back. The rise on Friday was directly related to a comment made in Israel by a leading politician that they have no alternative but to attack Iran. This was later refuted by others in Israel and the US so it may well pull back on Monday. Personally I think the rise is not matched by demand and has been sustained by speculators and I have a bet that the price will fall below $100 before the end of this year. It is just a bet though because I learned a long time ago not to try and predict market direction.

 

 

Paul

[cowpip 10]

Good point, Trader333... you're probably right - the comments from Israel probably started the ball rolling. The tie between the dollar and oil is probably a lot more complex than I was thinking when I posted that comment. In many ways, it may even constitute a reinforcing feedback loop: news concerning israel's possible intentions hit the wires and cause a jump in oil, which (combined with employment news) allows the US dollar to depreciate. That depreciation probably reinforced the upward move in the price of oil, which may have also in-turn reinforced some weakness in the dollar?

 

I guess the source of the dollar decline / oil rise doesn't really matter. As traders, we just need to know that it happened, recognize what may happen in the future as a result, and follow the crowd.

 

What struck me on Friday was GBPUSD went up while GBPCHF went down. Seems the market is diverging giving signs in money moving unilaterally (I think?). Any idea on this movement?

 

Swissy is (as you undoubtably know) a safe-haven currency. There was definitely some safe-haven activity occurring on Friday (even in treasuries). In my mind, that helps explain the drop in GBP/CHF. To me, the rise in GBP/USD simply means that GBP weakened (yes, weakened) less than the USD. GBP seems to have weakened against most of the other majors, which makes sense given how precarious the UK economy seems to be relative to the other majors.

[cowpip 10]

For the moment, I don´t correlate oil to the currency fluctuations but of course it could be ignorance and naivety on my part.

 

Here's a chart that illustrates the relationship fairly well, in the latest issue of the Currency Trader magazine (I don't read it [but it is pretty good for those who are new to forex], but was pointed to it by a friend).

 

EDIT: The relationship seems to be getting stronger the lower the dollar goes (or the higher the euro goes, or both). It was pretty weak at the beginning of the chart, imo.

[ztrader 10]

...

I guess the source of the dollar decline / oil rise doesn't really matter. As traders, we just need to know that it happened, recognize what may happen in the future as a result, and follow the crowd.

....

 

cowpip, you hit it right on, "it doesn't really matter". Most traders seem to go astray from what is right in front of them, their chart, their method. Stick to what shows on your chart and method you use. If your method signals a LONG and if it so happens that the dollar decline/oil rise, so be it. Take your profit. Go with the market flow and market timing. It's hard to go wrong with that.

 

ENJOY!

 

ztrader

[GammaJammer 10]

What struck me on Friday was GBPUSD went up while GBPCHF went down. Seems the market is diverging giving signs in money moving unilaterally (I think?). Any idea on this movement?

 

usd/chf is more often than not the big mover when the dollar's really moving these days - look at the behavior of eurchf for proof. Behaves far more like a CHFx than a EURx.

 

GJ