Analys från DailyFX
GBP/USD Technical Analysis: Break of Brexit Lows on Dovish BOE
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Talking Points:
- GBP/USD Technical Strategy: Fresh lows in the pair driven by anticipated dovish tilt from the Bank of England.
- GBP/USD is trading at +30-year lows; be careful of chasing so near a major psychological level at 1.3000.
- If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator.
The British Pound put in a profound movement against the US Dollar on the heels of the Brexit referendum, setting a fresh +30-year low early last week at 1.3118. Tuesday and Wednesday saw a bit of a recovery as the pair rallied back to the 1.3500 level that was the low set in the Financial Collapse; but this rally seemingly came undone after Mr. Carney hosted an unplanned press conference in which he told markets that the Bank of England may be looking at a rate cut this summer to offset an expected decline in economic data that may come about from the decision of British voters to leave the European Union. This drove the British Pound down to the 1.3200 level against the US Dollar, and the early portion of this week saw that support level hold until Mr. Carney took the stage once again.
In this morning’s Financial Stability report, the head of the BOE warned that there is the threat of ‘material slowing’ in the British economy. In a preemptive response, the Bank of England is going to try to offset these risks just two weeks after the referendum by cutting capital requirements for banks; and may be looking at a rate cut at the next BOE rate decision on July 14th.
While actual impacts from Brexit may be too early to see in economic data just yet, and considering the fact that we likely won’t be seeing that next step in Brexit discussions until October after a new Prime Minsters is installed, the tone of the Central Bank is clear: The BOE is looking to take a dovish tone towards rate policy in the near-term, and that is bearish for the British Pound. The BOE is doing its best to telegraph extreme caution to markets, and the fact that we’ve already heard from Mr. Carney three times in the twelve days since the Brexit referendum highlights this fact.
So there isn’t much of a bullish case to be made on GBP/USD at the moment. The bigger question is how to position-in to shorts given that the pair is currently trading near fresh 30-year lows. And just underneath current price action is a major psychological level at 1.3000, which could complicate profit targets on short-side positions if this major level ends up coming into play for the first time in over 30 years.
Traders looking to get short in the Cable can look for resistance to form before triggering, and there are two nearby levels that could prove attractive. The prior ‘Brexit low’ was at a level of 1.3118, and earlier this morning just ahead of the release of that Financial Stability report, we saw that support level show again (indicated by the red horizontal line on the chart below). And a bit higher on the chart, and perhaps even more attractive for potential resistance is the zone in the 1.3200 range (highlighted by a red box). Resistance at this zone would enable traders to lodge a stop above the prior swing-high at 1.3340, with targets set towards that 1.3000 psychological level with a better than 1-to-1 risk-to-reward ratio.
Created with Marketscope/Trading Station II; prepared by James Stanley
— Written by James Stanley, Analyst 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
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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
To be added to Christopher’s e-mail distribution list, please fill out this form
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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