Could GBP/USD head higher this week?
Fawad Razaqzada May 14, 2018 1:29 PM
This week will be lighter in terms of major scheduled economic events than last. That being said, there still be some potentially market moving data to watch
This week will be lighter in terms of major scheduled economic events than last. That being said, there still be some potentially market moving data to watch. Among other things, we will have the Australian employment report and GDP estimates from Japan and the Eurozone. So, the Aussie, yen and euro could all move sharply at various points this week. But to us, the pound and in particular the GBP/USD currency pair looks as the most interesting one to watch this week.
In addition to the technical significance of the 1.35 handle which is holding as support for now (more on this below), there’s also some important UK and US data coming up on Tuesday – namely, UK jobs and wages and US retail sales figures. What’s more, the dollar rally seems to have paused for breath. The greenback’s hiatus could further aid the cable’s recovery or even accelerate it if the former were to fall further.
From a technical perspective, the GBP/USD looks like it has formed at least a short-term bottom after it ended a three-week losing streak last week with the formation of a doji candle at long-term support around the 1.35 handle. As well as a psychologically-important level, this is also where several long-term technical factors converge.
As can be seen in the quarterly chart (inset) 1.35 was a prior support back in 2009, which briefly broke down post Brexit but now that we have moved back up above it, this level could very well turn into the new long-term support. The 1.35 level also marks the heads of the hammer candles that were formed on the monthly and quarterly charts. What’s more, 1.35 is where this year’s trading started, and it comes in just below the 200-day moving average, which has now been reclaimed again by the bulls. Furthermore, one can observe a small positive divergence on the momentum indicator RSI, which made a higher low at oversold levels when the cable made its latest lower low. It indicates a loss of bearish momentum, which could be a bullish sign.
But the bulls still need to chop some would. First and foremost, they now need to push the cable above last week’s high of ~1.3615 and hold their ground there for a while. If that were to happen then at the very least, 1.3715 would become the immediate objective – this being the last support prior to the breakdown, so could turn into resistance. The next bullish objective or potential resistance comes in at 1.3895, likewise an old broken support.
In summary, given the above technical reasons, we are now bullish on the cable for as long as it continues to hold above 1.35 on a daily closing basis. But if it were to break this level down decisively then all bets would be off.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.