Monday January 13, 2020 - 15:37:06 GMT
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Forex View: Don't Fight the Central Banks
There is an old adage in forex trading, which is “don’t fight the central banks.” John Bland, co-founder of global-view.com, reminds me of this every time a central bank signals a surprise or potential change in monetary policy. One reason is that the forex market trades on expectations and when they change markets adjust accordingly.
The latest example is the Bank of England where Governor Carney made some dovish remarks that led to expectations of a potential rate cut. This was reinforced by comments from some other MPC members, which in turn has put downward pressure on sterling. This comes in a market that entered the year with the GBP underpinned by Brexit relief so there were long positions to get squeezed out on the shift in the interest rate outlook.
This is evident on EURGBP, where an 8 day trade around .85 was broken on Monday, sending a bullish signal. Those who have followed me in the past know how I search for trading patterns around pivotal big figures (round numbers), such as .85 and how it sends a signal (in this case a bullish one) once the pattern is broken.
What does this mean going forward?
1) A hyper focus on UK data as this will help shape interest rate expectations
2) Close attention to comments from MPC members for any hints that more support a rate cut
3) Watch GBPUSD 1,30 as it will set the trading bias.
4) A limit on the GBP upside unless rate cut expectations change
Co-founder of global-view.com
Founder, The Amazing Trader
Creator, AT Ladder Strategy
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