Cable doesn't know where it is going but it's on his way

The best way I can describe what GBP buyers are up to is to use Carl Sandburg’s words: “ I’m an idealist. I don’t know where I’m going but I’m on my way”. For those of you who don’t know who Mr Sandburg is, I will just tell you he was an American writer and poet, winner of three Pulitzer prizes.

Mark Carney, the BoE governor, revolutionized the UK’s monetary policy by introducing the forward guidance, linking it to the unemployment in the same way as FED did. Only that in the six months since forward guidance was implemented, the UK’s unemployment rate has fallen to 7.1% from 7.8% bringing it as close as only 0.1% from Carney’s threshold of 7%. He repeated so many times that reaching the 7% target will not be a trigger for rate hikes, but you know investors: they don’t give a dime on this kind of things and pushed cable on higher highs.

And they did it even on Wednesday, when Mark Carney delivered a new forward guidance saying that it will not raise rates until the spare capacity in the UK economy has been fully absorbed, which it does not see happening until 2015. BoE governor said also it would consider a broader range of indicators, including the unemployment rate, wages and productivity and business surveys when deciding to raise rates, and added that when rate rise they will do so only gradually.

In my opinion, the message is clear: NO rates hiking till 2015 and even then, if will happen, will be only gradually. So why are the investors so happy and keep pushing gbp/usd higher? There is no doubt that the UK’s economy is recovering and that in this moment maybe is the only one in the world showing constant growth but since when the investors care about the real economy? If they would, the eur/usd should trade below parity and usd/jpy above 150.00 if you look at the contrast between the economies and between the monetary policies. As Carl Sandburg said, the investors, don’t know where they are going, but they are on their way.

Do you know what nzd/jpy and gbp/usd have in common? A few weeks ago I spotted (and traded of course) an ascending wedge on nzd/jpy on the daily chart as you can see below. I have to say that my first attempt finished with my SL triggered as the rate action came back in the pattern after having broken it a day earlier. But I did not quit and tried for the second time and this time I cashed a nice profit (and covered the loss from the first attempt also:) ). The nzd/jpy did not went as low as 80.00 as I was predicting at that time but I shorted at 86.60 till 81.60 (the lowest low was made at 81.35).

Strangely, the gbp/usd is showing exactly the same picture: ascending wedge – broken – the rate action back into the pattern – on daily chart. I know that many of you not even know that this time frame exist :) but if you look on the monthly chart you will notice that cable is approaching a strong resistance area. And in exactly that area the rising wedge ends. Coincidence?

Before I close my analysis, I would like to ask one more time: Why are the investors so happy and keep pushing gbp/usd higher?

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Tags: ascending, cable, gbp, idea, trade, usd, wedge

Comment by Daologic on February 14, 2014 at 9:38am

Good read!

Sometimes I wonder if you are a trader or a novelist! I think both!

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