Should You Be Shorting The GBP/USD? September 14th 2015 FX Market Analysis
I’m going to make a case for a possible swing trade short on the GBP/USD. Before you read any further understand this first. A bias is not an entry signal. We could see the GBP/USD rally 500 pips this week and therefore until the market validates my opinion I will personally be taking zero action like always. Why do I favor a Pound short this week. Lets talk fundamentals and positioning for just a minute. On Tuesday we have UK CPI and if you haven’t noticed UK CPI is at the lowest point we have seen in well over 10 years. This, along with all the other negative UK data means no rate hike likely to come in the near future and thus a weaker Pound. Second, we have the Fed rate decision this week on Thursday at 2:00 PM Eastern. This is without a doubt the most important rate decision in years as they are finally expected to hike. At this point I don’t think they have any other choice but to hike. If they do not hike that would be telling the market that the US economy is so weak it cannot even handle a .25% hike. If they do hike you can expect the USD to strengthen and therefore I would expect people to pre-position USD long and thus drag the GBP/USD down.
Another key pointing to my GBP/USD short bias for the week is the latest COT report. Remember the latest COT data only includes information up to Tuesday of last week. From September 1st to September 8th (Last week Tuesday) we had continued positioning short even with the GBP/USD rising on Monday and Tuesday. Are they selling into the rise as we see smart money typically do? Finally we have a technical reason for continuation down. On the daily and 4H chart you can see we are coming into clear resistance and therefore should begin to see technical selling as well.
Preferably we will actually see the GBP/USD rise for Monday and maybe even Tuesday. Whatever daily candle finally starts to show rejection down will more than likely be the start of continued downside for the remainder of the week. If the GBP/USD closes above 1.5500 I would begin to lose my bias. As I said at the beginning of the commentary, this is just an opinion and I will not take a trade short until a valid short term setup comes together.
EUR/USD Enters ‘No Mans Land’
The EUR/USD is now in what I term as ‘no mans land’. Because we had no previous interaction the last time the price was in this area I cannot expect to see it now. As of right now I do not have an upper level that I would look to short from on the Euro. That doesn’t mean we will not see one come together today. What is does mean is that until it does I would not be looking to short the Euro. In fact, even the lower levels are quite limited as I only have one level I would look to go long from at present. This too may chance but we would need to see a new level created first.
Right now I’m open to trade the EUR/USD either direction based off of a valid stop run from a pre-selected manipulation point. As already mentioned the levels are limited which makes trade opportunities limited as well. Keep in mind the bias I mentioned above in the Pound. While both pairs do not move in perfect harmony, when one pair begins to make an aggressive move the other is often not far behind. Also the USD catalyst this week is strong and thus all pairs should be affected.
Strong Short Bias On GBP/USD
Its important to reiterate that we may see further upside early in the week and thus don’t get stuck thinking upside cannot happen. In fact until signs of weakness begin to show I will keep my options open on the Pound and continue to trade either direction based on any valid trade setup that occurs. If the longer term bias is going to be correct I would expect to see the market topping out by Tuesday at the latest. If that doesn’t occur then I will begin to lose a bit of faith in the outcome. As a trader it is so critical to not be arrogant. So many times traders develop opinions that might be extremely valid and have everything supporting it. Then when the market doesn’t do what they thought, instead of being humble and reassessing what could happen they double, triple, and quadruple down before taking a massive loss. Opinions can be great but they can also kill an arrogant trader who refuses to admit they might be wrong. Remember the market is always right.
Unlike the Euro, the Pound has great short term manipulation points from which to trade from. As I mentioned earlier, until the downside begins to show itself I will continue to trade either direction based off of any valid stop run that occurs.
Forex News For September 14th 2015
To start the week we do not have any economic data that will be released during our valid trading hours. Tuesday, Wednesday and Thursday all have data that will be capable of creating large market fluctuations so enjoy the day off!
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