Forex Depth Analysis: GBP/USD - By Finotec Group

Forex Depth Analysis: GBP/USD

Sterling unlikely to recover ahead of more PMI data!

Sterling headed for its biggest daily fall against the dollar in a month on Monday, hit by a slowing housing market, a manufacturing sector on the brink of contraction and a profit warning from a major mortgage lender.

The troubles at Britain's biggest buy-to-let mortgage lender coupled with data showing new UK home loans tumbled to a record low in April stirred concerns about the health of the UK housing and financial sectors, both key drivers of economic growth. There was also bad news for the economy from the manufacturing sector, where the May Purchasing Managers' Index (PMI) signaled stagnation.

The following technical analysis gives us a detailed lookout on what is expected to happen to GBP/USD.

The buying point is at 1.9690; based on a break of a strong resistance.

  • Previous resistance is the take profit at 1.9825
  • Fibonacci 23.6% is the stop loss at 1.9623

The selling point is at 1.9626; based on a clear downtrend.

  • Fibonacci 61.8% is the take profit at 1.9535
  • Fibonacci 38.2% is the stop loss at 1.9681

To strengthen our analysis; we use many indicators, starting with MACD (Moving Averages convergence divergence); we notice the crossing of MACD line to the signal line with a break of the equilibrium level. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bearish direction.

The momentum oscillator is very important to understand the strength of the market and as we see on the graph it is in a clear downtrend. The Stochastic oscillator breaks 80% line and continues to go lower.

* The following analysis is for information only; Finotec is not responsible for any decisions or misinterpretations based on the given tex

Finotec Group Inc.
 http://www.finotec.com/

Disclaimer: FINOTEC Tradings Market Commentaries are provided for informational purposes only. The information contained within these reports is gathered from reputable news sources and not intended as investment advice. FINOTEC Trading assumes no responsibility or liability from gains or losses incurred by the information herein.

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Disclaimer: Content in the Forex Forecast and Analysis section is for informational purposes only. Contributors submitted Forex Forecast, Forex Commentary, Forex Analysis, and Forex Articles and articles on other markets are based upon information gathered from various sources believed to be reliable, complete, and accurate. However, no guarantee can be made as to the validity of the believed sources. All statements and expressions in the Forex Forecast and Analysis section are opinions, and not meant as investment advice or solicitation. Forex Markets can be volatile and opinions may change without notice.

FOREX : Foreign Exchange Market

FOREX is a word play on the term Foreign Exchange Market. It is a market for buying and selling of currencies from all over the world. Certainly, such transactions are bound to be voluminous. It is just an estimate that there are about transactions of $1.5 trillion USD on a daily basis in the FOREX. Now just compare this with the paltry $300 billion USD a day transactions for the US Treasury Bond and the $100 billion a day transactions for the US Stock Exchange.

The FOREX came into existence in 1971 when the fixed currency exchanges were abolished. Currencies no longer had fixed values after that; on the contrary, their rates (mostly taken in comparison with the USD) were fluctuating, and changed on a daily basis. Throughout the seventies and the eighties the FOREX grew steadily, showing more advancement in the later years. The market has stupendously grown from $70 billion USD a day to the staggering amount that it transacts today on a daily basis.

There are actually about five thousand trading institutions in the FOREX. These include international banks, central government banks such as the US Federal Reserve, and commercial companies and brokers for all types of foreign currency exchange. The best thing that shows the unbiased nature of the FOREX market is that it has no fixed headquarters anywhere – it operates primarily from all major cities like New York, Tokyo, London, Hong Kong, Singapore, Paris, Frankfurt, etc. One can even use the telephone or the internet to make the transactions. The major businesses at the FOREX are the buying and selling of products in other countries. Several transactions are also conducted from the currency brokers or traders who stand to make small profits with the daily fluctuations in the market.

Most of the FOREX business is centered on big banks and financial institutions, but it doesn’t mean that the FOREX is inaccessible to small investors. The recent changes in the financial regulations have effectuated this accessibility. Earlier, a minimum transaction size was required to conduct business with the FOREX. But the current rules have made it possible to break large inter-bank units into smaller bits. Each bit is worth as less as $100,000. This makes it possible to each individual investor through loans that are extended for trading, known as leverage. The ratio to control the lots is 100:1. This means, every $1000 USD will allow one to control $100,000 on the FOREX.

The benefits of trading with the FOREX are mentioned below:-

(1) Liquidity of Investments – As the FOREX is a huge market, the funds have a very high degree of liquidity. This is because of the presence of the international banks who provide their bids and carry out a large number of transactions on a daily basis. Therefore, there is always a buyer or seller for any type of currency.

(2) Highest Degree of Accessibility – The FOREX is open 24 hours a day for 5 days a week. Every Monday morning the exchange opens at Australian Standard Time and closes on Friday afternoon at New York time. Greater accessibility is provided because the transactions can be conducted from the person’s home or office.

(3) Open Market – At the FOREX, there are no secrets. All the fluctuations that occur in the market are made accessible to everyone at the same time. There is no insider trading in the FOREX.

(4) No Commission – There is no hassle of paying commission to the brokers in the FOREX. Here the brokers earn by setting up a difference between the buying price and the selling price of a currency, which is known as a spread.

It must be understood by now that for the FOREX to work effectively, the currencies must always be traded in pairs. For instance, the Japanese yen must be traded against the euro. When one kind of currency is sold, there should be another to be bought in its stead.

The profit happens because there is always mobility between the different currencies. Even if there is a miniscule change in the exchange rate, then it could mean substantial changes in the profits due to the large amount of money involved in the transactions. People are thronging to the FOREX and not any other institution due to the trust that they have in it. To add to the advantage, the market is absolutely well-advanced and uses sophisticated software for dealing out its transactions.

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