Cable could snap back to reality

26 August, 2016

The recent improvement in UK data has seen many investors and analysts, ourselves included, ask a rhetorical question with a hint of sarcasm “Brexit, what Brexit?” Traders have apparently reduced their net short positions from record high levels as they realised the fallout in the immediate aftermath of Brexit was not as bad as many had feared. Granted, not all the economic pointers have been great but on the whole July has been a good month for the UK economy.

However, we don’t want to jump into any conclusions as the economy works at a much slower pace than the markets. The truth is, we don’t know what exactly will happen when Theresa May finally decides to trigger the Article 50 exit clause. We don’t know how long it will be until she finally does it. The long-term economic consequences could turn out to be a lot worse or indeed a lot better than what many expect at the moment. Given this uncertainty, the pound’s upside potential will most likely remain capped for the foreseeable future. In fact, the cable could potentially drop further lower before we see a bottom.

In the short-term, there is also a risk for sharp pullback in the GBP/USD. For one, speculators who bought the dip on the back of the improvement in UK data may begin to take profit. For another, the dollar shorts may also ease the pressure ahead of the Jackson Hole symposium, which begins tomorrow. While this much-talked about event could turn out to be a dump squib, some traders will be taking no chances.

So, there is the potential therefore for the GBP/USD to ease back in these last couple of days of the week at the very least.

Technical outlook:

The GBP/UUSD has been trending higher as macro pointers in the UK improved and the dollar took a back seat amid weakness in US data. If you recall, we highlighted the possibility for a short-term bullish breakout in one of our daily reports last Wednesday (see “Brexit, what Brexit? UK data continues to confound expectations” for more). Then, the Cable was trading around the 1.30 handle, a key short-term support which held as we had anticipated. This 1.30 level is also a key psychological level and I have repeatedly warned that the Cable could oscillate around it for a while post the Brexit vote, which is exactly what has been happening. Speaking of Brexit, the low that was hit on that Friday June 24 was at around 1.3225. As can be seen on the 4-hour chart, below, this level has acted like a pivot. Now that price has reached this level after an extensive rally, there is a risk for at least a short-term pullback. This view if supported further by the negatively diverging RSI, which indicates that the bullish momentum may be weakening. What’s more, there is a bearish trend line that has held as resistance around the 78.6% Fibonacci retracement level against the prior swing high, around 1.3265.

Indeed, the area above this 1.3265 level and below 1.3290 is a key short-term resistance zone. If the Cable were to eventually break through it then we could expect to see a more pronounced rally. In this potential scenario, the prior swing high at 1.3370/5 area would then become the first bullish objective, followed by 1.3510/35 area where the 127.2% Fibonacci extension level converges with a previous high. It is even possible for price to break through this area and fill the gap that had been left behind in the first weekend post Brexit, between 1.3535 and 1.3675.

But if the Cable snaps back as the abovementioned technical indications suggest, then we can forgot about those bullish levels for a while. In the bearish scenario, the first levels of support that need to break down are at 1.3200 and then 1.3160. The potential break below these levels are likely to triggered further momentum-based selling pressure, possibly until we get a much deeper retracement – for example a 61.8% or 78.6% pullback against the most recent swing low (not drawn on the chart). Some of the other potential support levels are shown in blue on the chart.

Source link  
Gold surges to major $1250 resistance as uncertainty prevails

Gold surged Thursday on a breakout of its previous consolidation to hit and slightly exceed major technical resistance at $1250, a level not seen since early November...

Gold remains vulnerable amid hawkish Fed, strong dollar, equity highs

Gold has climbed sharply since the beginning of the year as the US dollar has pulled back from its late-2016 highs and the US Federal Reserve has exercised characteristic restraint in raising interest rates further after the last rate hike in December...

Gold well-supported on safe-haven flows, lagging dollar

Increasing political and economic uncertainties under the new Trump Administration, coupled with a sliding US dollar since the beginning of the year, have led to a sharp rise in gold prices for more than a month...

Gold pressured as dollar and equities remain supported

As the US dollar found some new life on Thursday and US equity markets hovered right around their new all-time highs, gold extended its recent pullback well below the $1200 handle. Since late December, the price of gold had been in a sharp relief rally from its 10-month lows around $1125 support...

Crude oil maintains bullish trend

Oil prices were initially weaker at the start of the new week, but they have now recovered to trade almost flat at the time of this writing. At the weekend, the OPEC and some producers outside of the group met to discuss the progress of their oil production deal...

Trump press conference fails to deter equity bulls

President-Elect Donald Trump spoke on Wednesday morning at his first formal press conference since the November elections, and the markets were all ears. Trump covered a lot of ground with multiple topics that included...

Gold ripe for potential relief rally

The charts tell a clear story of the unrelenting plunge in gold prices since early November. This steep dive has been the result of several related factors, all of which have the potential to extend well into the new year. These largely Trump-driven factors include...

Could EUR/USD finally break 1.05 on this FOMC day?

The market is demanding a rate rise and the Fed better deliver it today, for if it doesn’t the bank’s credibly will be severely damaged. There is really no excuse not to do so. Economic data has been improving, financial markets are calm...

Mixed Jobs Report Keeps High Fed Expectations Intact

As we noted the day before Friday’s US jobs report, only a significantly worse-than-expected reading for November would have likely made the Federal Reserve’s next interest rate decision more difficult...

In the past 24 hours Bitcoin has gained 5.36% and reached $3518.33612558. Open your trading account with the best cryptocurrency brokers on special terms today.

In the past 7 days the EUR/USD pair has lost -0.0395% and is now at $1.1371. Start trading and making money on Forex today.

In the past 7 days Ethereum has gained 4.8% and is now at $93.9556966035. Have the most popular cryptocurrencies compared online 24/7.

Top Brokers offering Forex Market Analysis

Forex Currencies Forecasts

Top 10 Forex Brokers 2018

# Broker Review
6FIBO GroupFIBO Group84%