Analys från DailyFX
GBP/USD Technical Analysis: Back to 1.3000, Now What?
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Talking Points:
– GBP/USD Technical Strategy: Mixed longer-term, mixed near-term.
– GBP/USD set a fresh 10-month high earlier in the week; but has since reversed with prices falling back-below the vaulted psychological level of 1.3000.
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In our last article, we looked at the bullish break of the bull flag formation in GBP/USD. As we shared, this opened the door to bullish continuation strategies, as a recent influx of hawkish clues pointed to the fact that the BoE might need to look at rate hikes sooner rather than later. At the center of that argument, however, was inflation.
Inflation is the elephant-in-the-room of the British economy at the moment. After the ‘sharp repricing’ in the value of the British Pound around the Brexit referendum and the ensuing dovish campaign from the BoE, the prospect of stronger inflation seemed simply mathematical. As prices in GBP/USD had dropped by more than 20% in a very short period of time, logically, we would see prices beginning to rise for the import-heavy economy. But despite this risk, the BoE remained uber-dovish under the expectation that the risks of Brexit hitting the British economy would far outweigh the risks of stronger inflation.
The brutal slowdown that the BoE was expecting around Brexit hasn’t really shown up. But inflation has continued to rise, and last month saw CPI come in at an annualized 2.9% clip, which had started to create a bit of commotion within the BoE; and at last month’s rate decision, we saw the most votes for a rate hike since 2011 as the MPC voted 5-3 to hold rates flat. In the following weeks, we heard from various members of the BoE that opined that higher rates might be necessary to ward off these stronger inflationary forces. When Mark Carney made similar remarks, warning that rate hikes may be on the horizon for the U.K., the British Pound went into full-bull mode as prices drove above the psychological 1.3000 level.
GBP/USD Four-Hour Chart: Bullish Move Drives Above 1.3000, Albeit Temporarily
Chart prepared by James Stanley
On Tuesday of this week, U.K. inflation for the month of June was released. Inflation came-in at an annualized 2.6%, falling below the expectation of 2.8%. This seemingly removed a bit of pressure from the situation, as softer inflation can allow the BoE more time before needing to adjust rates. In response to this softer inflation print, the British Pound fell against most major currencies; the U.S. Dollar included even as the Greenback was driving down to fresh yearly lows.
This leaves Cable in a fairly vulnerable state, and this can urge caution for the bullish continuation approach, particularly as the pair trades below the venerable 1.3000 level. Bearish price action has begun to show on the hourly chart as support has been unable to hold. Should the lower-high that printed at 1.3020 remain respected in early trade next week, this can open the door to short-term bearish momentum strategies in the search for a continuation of lower-lows and lower-highs.
Cable Hourly: Bearish Momentum Beginning to Show with Lower High’s and Low’s
Chart prepared by James Stanley
— Written by James Stanley, Strategist for DailyFX.com
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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