Cable awaits Wednesday breakout.

Today we had broad risk-off sentiment in the currency markets lead by losses in the EURUSD and volatility in STIRs as continued uncertainty around the bailout in Cyprus has sparked another inevitable round of contagion fears for peripheral Europe.

Meanwhile Sterling held its own today and was the out-performer relative to the other majors including the Aussie and a flight to quality in Gold.  For the relentlessly bearish GBPUSD market of late, today's strength was impressive and indicative of a market that had clearly overreached to the downside, the low of which formed on the rejection of worse than expected UK manufacturing data which sellers used as an excuse to take profits.  Since then we have seen a steady retracement back to what I perceive to be fair value as price has steadied in a tight range since the start of the week and traders wait for Wednesday's slew of UK data before taking action as shown below on the 4hr chart.

We can see that despite weakness in other risk currencies, the above pair has been unable to trade down and this technical flag formation is displaying clear signs of strength.  Fundamentally, however, Cable is a massive sell as improving economic conditions across the pond contrast starkly with a struggling UK economy and continued dovishness in the BoE.

I am therefore looking for sell opportunities in the inevitably volatile price action expected tomorrow with both the BoE minutes and the FOMC set to deliver a double wammy to this market.  Running in the background will of course be the Chancellers delivery of the Spring Budget, although this has been traditionally bullish for FTSE and GBP, I think it will clearly be overshadowed by the actions/ or inaction of the Central Banks.

TRADES: The main shock scenario I perceive for this pair would be if another 3 months of QE is agreed by the MPC and it will be interesting to see how aggressively the market sells-off in this scenario. If it can't maintain a sell-off than this is very bullish and I will be looking to get long on any false break of the current trading range. Alternatively, if there is a relief rally off the back of a 6:3 vote then I will be looking for any excuse to fade this move i.e.. any sign of sellers entering the market in the major resistance zone above 1.5275 or, on a lesser scale - a false break of the current trading range that has been in place since Monday would do nicely to trap Bulls. I would look to take profits quickly, however, and not want to hold a position going into the FOMC in the evening.  In terms of the FOMC I am expecting volatility but no game changer.  We all know Bernanke is a dove and although the economy is improvinng, the unemployment figures still have some way to go before withdrawing stimulus.  On the other hand, there may be concern that the stock market is overheating and Bernanke may signal this to the market to take some steam out of this rally.  This would be the shock scenario for me but it is unlikely I will be able to trade Cable off of this, but my mates in fixed income will have a field day!

      

USD/CHF false break.

We've just seen a false-break to the up-side in the Dollar Swiss pair.  This converges with previous major resistance and is probably worth a top-picking attempt with tight pre-determined stop above the high of the preceding hammer candle on the 4hr chart as shown below. Generally I would be wary of fighting the clear up-trend in this pair as the global "risk-off" theme continues, however, the risk reward could still be here if resistance holds-up and profit taking ensues.    

I will be looking to add more if we see a break below the triangle set-up as illustrated on the 1hr chart:

EUR/USD bottom picking.

We've got a text book false break set-up in the Euro dollar pair on the 4hr chart as illustrated below.  This set-up gives us the opportunity to go long with a tight pre-determined stop below the low of the preceding 4hr hammer candle.      

Gold Long set-up.

In Gold we have a nice set-up on the Daily chart.  After forming an inside day on Friday, Gold broke out to the downside today before re-tracing the entire move and duly forming a false-break hammer candle on the daily chart.  This has occurred at previous support and after a gradual loss of momentum in selling pressure since topping out in Feb. If we can close above the 1630-35 level I will be looking to get long...

 

    

GBP/JPY follow up.

We have seen this pair trade-up to a key resistance level where I have taken profit for a respectable 2/3:1 risk reward.  I will be watching for further price action set-ups here...

Long Set-Up in GBP/JPY

We have seen a false-break lower in the GBP/JPY pair today forming hammers on both the Daily and 4hr time - frames as illustrated below.  This Bullish price-action has coincided with the 38.2 Fib retracement.  I have accordingly initiated a long position and will aim to run it to new highs if the dominant Bull trend can prevail.  

Aussie Long initiated

Following on from my comments on Gold in the previous post; we can also find a similar set-up in the AUS/USD pair.  As a commodity currency, the fate of the Aussie is often correlated with Gold so it is unsurprising that a similar set-up has materialized in both markets simultaneously.  That being said, they are not the same market and a position in both is somewhat diversified.  However, your position risk should obviously be carefully managed if going long both the Aussie and Gold as they are highly correlated when it comes down to global Macro economy especially China during the overnight session (GMT).