The Weekly Update: Gearing Up for the Bank of England

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The BOE Monetary Policy

GBP is a currency that lead to extraordinary profits and substantial losses in the Forex market. Traders that attempted to long the currency after the Brexit incurred hefty losses. Technical analysis on short time frames (excluding scalping) may no longer be applicable as the fundamental end of the market appears to be dominating the currency. The impact of the Brexit on other currencies is immense, which have distorted numerous technical strategies. We initially expected the market conditions to normalize until October but it appears it is no longer the case.

In our trading strategy for GBP we will be using the charts but rely heavily on the market fundamentals. It is no secret the Bank of England (BOE) warned it will slash rates and initiate Quantitative Easing (QE) measures if Britain voted to leave the European Union (EU). The anticipated rate cut is 50bps, early estimations for the QE is GBP 75 billion a month. The BOE is due to release its monetary policy on Thursday. As we have already wrote in the past these easing measures are aimed to restore confidence following the Brexit and are already anticipated by the market, it will not be a surprise. The current expectations are for a 25bps cut on Thursday where an additional 25bps cut along with QE to been in August’s meeting. If the BOE does slash 50bps and announce the QE on Thursday it may be considered as a surprise but still well-anticipated.

BOE Rate Cut and QE

As the market has already priced-on the possible BOE actions it may force moderate gains in GBP pairs and crosses. The UK is still a member of the EU and all new EU laws will be applied to the UK until Article 50 is invoked, which is only expected to take place in October. As these measures are aimed to restore confidence it may drive GBP higher in the Forex market.

Traders that are currently short on GBP are likely to hedge their positions prior to Thursday, which may lead to corrective gains in GBP pairs and crosses. It is difficult to predict if the FX hedging will begin at the beginning of the trading week.

To be completely objective, if the BOE decides to employ negative rates it is likely to have a bearish impact on GBP. However, it is extremely unlikely the BOE will opt for negative rates.

GBPAUD Weekly Chart

Please click on the chart to enlarge:

GBPAUD Weekly Chart 10/07/16

GBPAUD Weekly Chart 10/07/16

From a technical angle, a downtrend is composed of lower highs and lower lows. What we are witnessing is a fresh low that is expected to be followed by a lower high. Although the next support is seen at 1.6700 we are uncertain the price will continue trading lower but post a lower high. The expected high of the lower high that may emerge may range between 1.7700 – 1.8340. Layering the protective stop below 1.6700 is reasonable as this is a weekly chart but we believe a tighter stop may be used via the 4hr chart. We hope for a bearish gap that will enhance the risk ratio of the trade.

GBPCHF Weekly Chart

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GBPCHF Weekly Chart 10/07/16

GBPCHF Weekly Chart 10/07/16

We will begin by highlighting it is not possible to implement a tight stop in GBPCHF, the order must be layered beneath 1.2515. Similar to GBPAUD and other GBP pairs and crosses, the positive divergence is an early indication of the corrective gains.

We are more comfortable using an entry order in GBPCHF than GBPAUD. As we believe the BOE monetary policy may be the trigger, we also need to assess the potential drawdown of entering at the beginning of the week.

The trade alerts’ details will be emailed after the opening of the Forex market.

GBPAUD Trade Alert

Please click on the chart to enlarge:

GBPAUD Weekly Chart II 10/07/16

GBPAUD Weekly Chart II 10/07/16

GBPAUD long at market price (1.7109)
Take profit: 1.7695
Protective stop: 0.6866
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 10 days

GPCHF Entry Order

We cannot take GBPCHF at market price without risking an excessive market exposure. We will use an entry order at a lower price. There is no guarantee such a retracement will take place but we cannot take GBPCHF at current levels.

GBPCHF entry order price 1.2624 (buy limit)
Take profit: 1.3400
Protective stop: 1.2440
Estimated duration: 21 days

The market has 24 hours to trigger our entry. If out entry is not triggered we will decide how to proceed. We do hope it will be due to a brief spike in CHF pairs and crosses.

GBPCHF UPDATE: The market missed our entry by approximately +20 pips before posting moderate gains (over +350 pips). We cancelled the order.

11/07/16 UPDATE: GBPAUD is trading at 1.7240 at the time of this writing. If our entry was well-timed we may not see a retracement back to the entry. We are closing 30% of the long trade at market price and shift the protective stop to the entry.

12.07/16 UPDATE: GBPAUD is trading at 1.7368 at the time of this writing.

Please click on the chart to enlarge:

GBPAUD Weekly Chart 12/07/16

GBPAUD Weekly Chart 12/07/16

We are closing 20% of the long trade at market price and shift the protective stop to 1.7148.

13/07/16 UPDATE: GBPAUD has pared the gains that were seen in today’s session. We are concerned by the upcoming Australian employment data. By the book this would be the time to exit the trade. However, GBP is still pointing higher despite today’s selling. One of the options we have is to close GBPAUD and re-enter in a different GBP pair or cross but it is an aggressive move and we chose not to opt for it.

We are closing most of the trade, leaving a small partial in. There is a fair possibility the stop will be triggered but we may be wrong. GBPAUD is trading at 1.7265 at the time of this writing, we are closing 30% of the long trade at market price and shift the protective stop to 1.7180.

14/07/16 UPDATE: GBPAUD is trading at 1.7505 at the time of this writing.

Please click on the chart to enlarge:

GBPAUD Weekly Chart 14/07/16

GBPAUD Weekly Chart 14/07/16

We are closing the last partial at current price, ending the trade with a decent profit. We are aware the gains were as a result of the BOE decision to remain on hold in July. Although it is subject to debate, we believe that even if the BOE were to slash rates GBP would still post moderate gains.

The Weekly Update: Gearing Up for the Bank of England

As GBPAUD long trade is closed this page can now be accessed by all traders. Open trades and relevant intraday strategies are restricted to members only. We have been providing trade alerts in the Forex market since May 2014.
The Weekly Update: Gearing Up for the Bank of England

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The Weekly Update: Gearing Up for the Bank of England

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The Weekly Update: Gearing Up for the Bank of England