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The Trader Advantage: Overbought Test Of Resolve
Excerpts taken from The Trader Advantage Program
Gbp/Usd moved 100 pips higher during the European session after reports from the U.K. labor market hit the newswires that were better than expected. The minutes from the recent Bank of England rate meeting revealed that nothing much had changed from the previous month, and that CPI and inflation reads were as much to do with a weaker pound than instigated by internal growth.
The MPC minutes suggest that interest rate increases are just as far away in the U.K. as any other major region, with the exception of Australia. This news had a positive effect on the major currencies, but the pound is the only pair to make a substantial breakout.
The euro had a shy attempt to break the 1.3800 area during the London open, but the move was quickly retraced, and the pair spent the rest of the European session trading in a tight range. Unless the infamous Greek problems are actually solved, rather than jawboned, there seems to be much more upside potential for the Aud, Cad or even the Gbp than the Eur. The two commodity currencies, the Aud and the Cad continued their march against the Usd.
The global market place is once again trading on light momentum, signaling that investors may be reluctant to invest fresh capital, especially around such vital values, and now that global equity markets have moved into deeply overbought territory. It will need a fresh fundamental reason to instigate the next long move if it is to be ahead of a reversal to support.
Every global asset (except the Usd) is currently trading in an overbought state on the 4-hour timeframes, and the same on most Daily chart reads, which raises some questions whether this non-stop buying can continue during the next few sessions. S&P traders have moved 80% of the last 30 sessions into the green, but a point to note is that the vast majority of that buying has been put in place by futures trade; the cash sessions have been weak in comparison.
The major currencies are also overbought, in a move that forced the dollar index lower, to hit the 79.50 area in intra-day trade, which is a price area not seen in a while, and a previous swing point of note that may get the major currencies snagged up on in intraday trade.
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