Article 50 was triggered last week and Sterling continued the March rally which started after the Bank of England’s March meeting indicated hawkish rhetoric from policy-makers followed by upbeat UK inflation and retail sales data and supported by Dollar weakness after and profit taking post the FOMC rate meeting last month and the failure for the Trump Administration to repeal and replace the Affordable Health Care Act.

With Brexit underway the UK and EU have a 2-year deadline to negotiate the exit agreement with June looking like the logical starting point for official negotiations due to the French election. As we know the market does not like uncertainty and while the exact details of the exit agreement still need to be hashed out the UK government published its position on Thursday in the Great Repeal Bill White Paper (‘Legistlating for the United Kingdom’s withdrawal from the European Union’) which is intended to give businesses, workers and investors as much certainty as possible by mitigating concern over sudden big changes to regulation over the next two years. The release of this bill resulted in Pound strength against all its counterparts. Also, recent data out of the UK has indicated that Brexit has not yet started showing a negative impact on the UK with the real reason behind the fall in Sterling due to a massive sell off and possible overreaction of the market getting out of Pound due to risk aversion.

Looking at COT data the market is net-short and short positions are at record levels. Should Pound move higher this could result in a short-squeeze that gets Bears taking profit or stops being taken out. Therefore, April may provide an opportunity for a Pound relief rally.
Historical data and seasonality shows that Pound strengthens during April and tops out at the start of May. This has been the case for the past 12 years. Perhaps it has something to do with UK fiscal running from 1 April to 31 March.

In terms of a trade I see opportunities to sell rallies on EURGBP due to the ECB recently confirming what every Euro Bear knew – policy will not be changed any time soon, rates are going to remain at current low levels and the asset buying program will continue until at least December.

Trading a strong pound against a weak Aussie makes sense. We have a RBA meeting coming up this week and the RBA is expected to keep rates on hold. The minutes of the March board meeting were less upbeat than previous meetings and the concern over risk in the housing market continues. The market is looking for any indication of the rate path beyond 2017 with some participants viewing low-inflation, on-going spare capacity in the labour market and weak wages growth as reason for the RBA to ease policy further in 2018.

GBPUSD long makes sense when USDollar is weak and would be a good trade if NFP is negative on Friday and we see an unwinding on the reflation trade. However, if NFP is positive and we see a rise in the US 10Y yield and the Yen strength in March was due partly to repatriation then GBPJPY would be a good buy due to pairing strong Pound with weak Yen. Should Yen be weak heading into NFP long GBPJPY would make sense.

According to eFXPlus, Morgan Stanley sees Sterling moving higher given the substantial GBP short position stating that marginally better news will push GBP higher. Morgan Stanley see an opportunity shorting GBPNZD due to NZD staying weak due to its sensitivity to global market volatility and New Zealand economic data. BofA Merrill Lynch sees Pound trading back to 1.20 with 1.20 presenting a buying opportunity. The only bank in an open trade on GBPUSD is Credit Suisse, who are short at 1.2538 with a target of 1.2110 and a stop at 1.2669.

EURGBP Daily

Market is sideways. Price is bearish. Top of the range eyed at 0.87 and bottom of the range eyed at 0.8450. Near term resistance eyed at 0.86 with further support eyed at 0.8350 and 0.83.

EURGBP H4

Market is bearish. Price is bearish though currently oversold. Due to price trading outside of last week's bearish target I expect profit taking to move price up towards resistance at 0.86/ 38.2% fib. I will be paying attention to new weekly pivot points at this level. Further support and resistance eyed inline with levels indicated on the daily chart.

GBPAUD Daily

Market is sideways. Price is bearish. The pair traded an inside month during March with MR1 and MS1 marking the top and bottom of the range. Resistance eyed at market, 1.6550 and further up at 1.6750. Support eyed at 1.6350, 1.63, 1.6250 and 1.62. Will be paying attention to new monthly pivot points and confluence between bullish entry points and support levels.

GBPAUD H4

Market is sideways. Price is bullish though in overbought territory. Price is currently at the 61.8% fib of the recent bearish move with the fib zone of the bullish move highlighted in green and labelled Fib Zone. I will be paying attention to weekly pivots and confluence between bullish entry zones, monthly pivot points, price action support and fib retracement levels.

GBPJPY Daily

Market is sideways. Price is bullish. Price has broken up higher at the apex of the wedge, pulled back and found support at the resistance trend line of the wedge/ 139. Strong resistance is eyed at 140.50 and price could continue ranging between 140.50/ 140.00 and 137.50/ 138.00. Further resistance eyed at 142.00 and 142.50 with further support eyed at 137.00/ 136.50.

GBPJPY H4

Market is sideways. Price is bullish though the stoch has crossed over into the trade zone. Support eyed at the 38.2% fib of the Aug '16 - Dec '16 bullish move. Resistance eyed at 140.50. Further support and resistance eyed inline with levels identified on the daily chart.

GBPUSD Daily

Market is sideways. Price is bearish. Price action indicates that price is at the top of the range with 1.2550 as the top and 1.24 as the bottom. Further support eyed at 1.2350, 1.2050 and 1.20.. Further resistance eyed at 1.26, 1.2650, 1.27, 1.2750.

GBPUSD H4

Market is sideways. Price is bullish. Price action indicates price trading within a wedge with price at the top of the wedge. Be careful of relying on this as the current top is the first touch of the resistance trend line so it is a bit subjective. Resistance at 1.2550 makes more sense. Support eyed at 1.25, 1.2450. Further support and resistance eyed at levels indicated on the daily chart.

8 thoughts on “Sterling – buy the dip in April sell the rally in May”

  1. nuno cabruja says:

    once again top fundamental analasys cheers Mr Gandalf

    1. Ryan Gandalf van Jaarsveld says:

      Thanks Nuno, I really appreciate your feedback!

  2. richard trusler says:

    thanks for all the work you have put in to this post, very good info

    1. Joe urban says:

      Hi Ryan, Great post! very concise yet full of information. Would you be wiling to share your source on seasonality? If not I understand. -Joe

      1. Ryan Gandalf van Jaarsveld says:

        Hey Joe – yeah, eFXPlus – Morgan Stanley and BofA Merrill Lynch both mentioned it and then I went and did some research and in previous price action and also read some other articles on the subject which backed it up. Not sure how Brexit will impact it though.

    2. Ryan Gandalf van Jaarsveld says:

      Thanks Richard, let’s see if we got it right

    3. Ryan Gandalf van Jaarsveld says:

      Hey Richard for some reason the site posted my response to you under Joe 😛

  3. Teboho Faro says:

    Seeing this type of work ethic make me increase my daily hours.

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