Peter Marsden's Forex Blog

The British CPI figure came out today. It came in at 1.8% which was lower than the forcasted 1.9%. It would appear this data has all but ruled out another interest rate hike this year, maybe even for next year as well. There is even speculation of a rate cut before the end of the year. It’s important to remember that these numbers are lagged, so we are probably starting to feel the full effect of all the previous rate hikes in the UK. It seems Mervyn King has done a good job at controlling inflation so far, but there are still inflationary pressures that may not be fully “priced in” to the these figures. At the time of writing, Oil was making record highs in excess of $88 per barrel. If oil remains this high, it may send this figure back over the 2% area in the coming months.

Out of all the central banks now, it looks like the European Central Bank is least likely to cut rates. Due to this the British Pound has fallen to a 2 ½ year low against the Euro.

Against the dollar the pound also slumped on the news. Lets take a look at the chart:

As we can see, cable dropped over 50 pips in the first few minutes after the release and appears to have set the trend for the day.

As we can see, GBP/USD is currently in a Triangle Pattern on the daily chart. This means that the recent range is getting thinner and thinner. A breakout at some point becomes inevitable and this can provide us with a nice trading opportunity. It’s very important that we remain patient at all times and wait for the right opportunity.

How do you trade this?

Personally, I wait for the trend line to break, then wait for a retracement back to the trend line. It is here where I make the entry. It is all about patience and discipline. Triangle patterns provide a great forex trading opportunity, but we must remain patient.

I have been watching this service for quite a while now. If you have read my website, you will be aware of my opinion on Managed Forex Accounts. I have written an article here. The historical results have been okay, not great but ok. They have been around 18 months, which certainly beats most Forex Managed Accounts. The equity curve is very bumpy indeed. This is certainly the sign of a very risky trading strategy.

Monthly Performance is as follows:

As you can see, 2006 ended in a nice 55.8%. This is a very good return, but as said previous not without considerable risk. They have amended their strategies many times and they have all been thoroughly back tested. They may be suitable if you have a very big appetite for risk and have the stomach to weather big fluctuations in your account, they are certainly not suitable for everyone.

Currently they have reduced the minimum to $1000 to open an account. This will certainly make it more appealing to a wider range of investors, as many people myself included would not want to put a large sum of money under such risk.

In conclusion, GalleonFX are perhaps one of the better managed account opportunitise I have seen that are open to the general public, but there are very few in my view that are even worth a look. If you have a big appetite for risk, and have at least $1000 to risk, they may be worth a shot.

Find out more from their website: http://www.galleonfx.com/

Mervyn delivered some good news to the carry trades involving buying the pound today. He said in his speech that he is reluctant to reduce interest rates to make life easier for lenders and he is still very keen to fight inflationary pressures, his goal is to keep inflation around 2%. Inflation in recent months has been slowly declining from its peak of 3.1% at the start of the year.

The pound gained against most of the major currencies on the news. King also predicted more turmoil in the financial markets ahead. So unless something drastic occurs, King’s comments certainly suggest a rate cut in the near future is very unlikely. This news should add support to the sterling pairs in the near term.

Today’s NFP came in at 110k, the expected was 100k. However, there was a big upward revision to the previous month’s figure, -4k upto +80k. Price spiked down a lot on cable, around 100 pips or so in around 10 minutes.. infact nearly half this move was in the first 20 seconds after the release. However, after the sharp initial move down, the dollar gave back all its gains and closed lower against the pound and flat for the day against the euro.

Here is a cable 5 minute chart showing price action.

Both the Bank of England and the European Central Bank (ECB) left rates on hold. This move was widely expected. This suggests unlike the Fed the ECB and BOE are not panicking about the current financial “crisis”. I use the word crisis loosely because on the grand scale of things, it’s no bigger than many things that have happened in the past. It is very small compared to the 9/11 tragedy.

Interest rate futures are a very useful gauge to see what the market is expecting in terms of future rate changes. The UK interest rate futures currently suggest no further hikes this year and possibly even a cut in the early stages of last year. However, as always a lot can change between now and then.

The Pound gained against the dollar on the news and was largely unchanged against the euro.

Watch out for the NFP tommorow…

GBP/JPY has been in a range for what seems like ages. It tried to break the 235.50 a few times but could not blast through. Finally today we have the break out.

Did you trade this?

I watched it blast through the 235.50 barrier, then waited for it retrace back to 235.60 then went long. Currently price is sitting 236.70. I currently have a break even stop. I may move to a trailing stop shortly.

Did you trade the cable setup? I traded the first trend line break, and got in then back in around the trendline area. Just got stopped out before the market headed back up quite substancially. Nevermind.. It was a high probability setup, it just didn’t work this time. I only risked 0.5% so its not the end of the world.  I am now stopping trading for the month and drawing a line here. +8.2% for September. This does not include the fully hedged carry trade.
The fully hedged carry trade is still live earning the rollover interest every day, I really love this strategy

An interesting setup here on cable.. The range is getting tighter and tighter. Something has to break within the next couple of days, maybe even today. We have some big US data coming out today, GDP and New Home Sales.

The way I often trade this type of setup is to wait for the trend line to be broken, then wait until price retraces back to the trend line area. Most of the time price does retrace to this area when the trend line is broken. This way I can get in and get a good entry and not risk too many pips.

As I am well up for the month, I have been remaining very risk adverse.. I haven’t got any good signals yet since the last trade on cable at the start of the week. I don’t mind, I would happily take the month as it stands. If a good signal does arise I will trade it risking around 0.5% of my account.

The only trades I have currently are the fully hedged carry trade setup mentioned earlier.