Quote:
Originally Posted by Flguy
Licking My Wounds
Today I was fairly confident that the cable was going to continue its upward trajectory and with a swing here and there we should have gotten closer to the 2.0000 level. Unfortunately for my still standing open bullish position at 2.0009 (Ouch) the cable plunged and lost it boost. Instead of the pair moving upward it zipped back to earth at an amazing speed losing just about 200 pips.
As we know that average movement of the GBP-USD is about 150 pips on a good day. Today was above average and there had to be a reason for the amazing sell off. It appears that the sell off was as a consequence of the bidding taking place across in Europe as many 63 financial institutions were aggressively bidding to get greenbacks to replenish their reserves.
Well it all happen that 63 financial institutions bid for more than the quadruple the amount of dollar on offer. The 63 financial institutions bid over $101 billion for the $25 billion auction which without a doubt, caused the dollar to rally and the cable to plummet.
For more information regarding the bidding auction please click here:
Real Time Economics : The Buck Stops Where?
Perhaps in the future we should consider days the dollar auction is taking place as it may cause the dollar to either rally or plummet.
However, we must realize that the reason that so many institutions are aggressively bidding to stash dollar in their vaults, is because they see the financial markets getting worse and not better. They are hoarding additional powder in the form of dollars which they see as a must have to be able to survive the more severe and more shoes drop financial crisis in the American continent. Unfortunately this hoarding of USD should not translate to long term strengthening of the dollar, but to the contrary it should weaken the buck therefore the bullish sentiment should return in surpass the 2.100 levels.
Happy trading |
Yes, that may have made some difference, with the demand for dollars reaching a new high at the auction.
However, I am not sure how great this effect would be, as this rush for dollars is no new thing. There has been a great demand for dollars from European banks since the crisis started in August, as most of their troublesome assets are dollar denominated, but these said institutions lack the dollar liabilities compared to their US peers, due to not having a natural inflow of dollar deposits. To counter this, many European banks have previously borrowed in euros, sterling and swissie, via their cental bank liquidity schemes, and swapped into dollars, thereby fuelling similar levels of demand for the greenback.
I would put much of yesterday's decline down to mildly dollar positive economic news, crude oil falling below its 100-day moving average, a rally in equities and yet another bout of poor economic data from the UK.
I am looking for opportunities to short the pair, but find myself reluctant to take on a position at these levels, with the NFP data release on Friday - an event which could well see a spike in the pair. I will watch price action today for short-term opportunities, where it will be interesting to see if the pair can clear the 1.9845 area.
