A beautiful technical correction on the daily chart has occurred in the GBPUSD currency pair. The level to watch during this correction was the area between the 50% Fibonacci level at 1.6455 and the 61.8% Fibonacci level at 1.6385. If we had a break below 1.6385, it would be safe to say that a reversal in this uptrend was unfolding. A hold, however, would restart the uptrend that should make new highs above 1.6750.
Bernanke killed the US dollar yesterday. UK GDP met expectations of minimal growth but growth nonetheless when most market participants, myself included, were expecting a contraction. US GDP was less than expected. All this has built a nice fundametal case for cable bulls. And the charts support.
Today’s session sees a nice correction in the $GBPUSD which is fully expected and healthy when a pair rallies 250 pips in 1 day. So far the 50% Fibonacci level has held up as nice support. Cable remains bullish above 1.6592. And I have more confidence in GBP bulls than USD bulls for several reasons:
The pair made 3 attempts to break below 1.6500 and each time was met with bids at 1.6430, the previous resistance level now turned support.
On this latest wave to the upside, 1.6500 held as support.
The fundamentals have deteriorated for the USD. The Federal Reserve welcomes a weak dollar to support the economy and with inflation still relatively subdued in the United States, the $FED is in no hurry to tighten monetary policy. Today’s US GDP report indicates further that the economy still needs support in the eyes of the Federal Reserve.
The market expects an interest rate hike from the Bank of England much sooner than from the Federal Reserve.
Bulls target 1.6750 for a break above while bears target a move back to 1.6500. Trade what you see.
While most of the market is looking ahead to the US FOMC meeting, sterling traders await the UK GDP number which will be released ahead of the Fed announcement. Today’s UK CBI manufacturing number was dismal and indicates to market participants that the British economy may have been weaker than the market expects in the 1st quarter of this year.
After languishing during Monday’s session above 0.8800, the EURGBP broke out after the release of the poor UK CBI numbers as sterling took a hit on the news across the board. This breakout rally made highs at 0.8903 before falling back to the 38.2% Fibonacci retracement level late in the NY session.
If UK GDP is weak, fully expect price to break out and test the 12-month highs at 0.8940. A break above that level sees price complete the quarter to 0.9000, a call I made way back in January. However, if price surprises to the upside, price will retrace this rally back to 0.8850. A break of that level to the downside sees price go to 0.8800.
Remember, trade the market reaction (price action) not the news headline.
The GBPUSD closed last week above 1.6500 indicating that its breakout to 18-month highs at 1.6600 is legitimately bullish.
The GBPUSD daily chart shows the breakout rally had no retracement. Therefore, I do expect the pair to retrace to 1.6400 before heading higher towards 1.6750. Only a daily close above 1.6575 after Monday’s trading session will change this short-term bias. That did not happen today.
Instead, cable dropped below 1.6500. Since the pair managed to hold above this level last week after breaking above it, this was a signal of weakness. This signal panned out as the pair dropped to an intraday low of 1.6466. Though price has sinced bounced back to 1.6500, price remains below the 1.6500 large quarter point signaling that more weakness could be in store for the GBPUSD.
Price targets 1.6450, 1.6430, 1.6380 to the downside and 1.6550, 1.6600, and 1.6625 to the upside.
This week all eyes will be on the FOMC. On Wednesday we will hear from the Federal Reserve as they will announce their decision on interest rates and US monetary policy. On the same day, we will get UK Q1 GDP and consumer confidence. Thursday is US GDP. The market will compare the health of both economics and we should see it played out in price. If the FOMC and US GDP are both optimistic or hawkish, expect further declines to be supported into 1.6380. However, if the Fed disappoints or UK GDP surprises to the upside, price will return to the 1.6600 highs.
Yesterday, Finnish elections and Greece soured the euro and supported the EURGBP’s descent to 0.8750. An expected correction after the failure at the 0.8920 highs, the pair remains bullish as it finds support at 0.8750 and begins to rally off the lows at 0.8740.
The EURGBP pair found support once again at the 61.8% Fibonacci level from the weekly chart at 0.8735. Despite the near-reversal, the pair remains well-supported and in today’s trading session has moved off the 0.8750 lows as it consolidated above 0.8750 at yesterday’s close. The bullish behavior around 0.8750, as price failed to push lower, prompted buyers to step in.
Judging from the hourly chart, the pair has plenty of room to stage a corrective rally to 0.8810. However, I consider a break above 0.8800 a bullish development and would expect a close above the whole number to prompt further gains toward previous resistance at 0.8840/50.
After a blank economic calendar from the UK, the market looks ahead to the release of the Bank of England (BoE) meeting minutes tomorrow. If there are no hawkish clues, the market will be very disappointed and could help send the pair past 0.8850 and back to the 0.8920 highs. On the other hand, any hints of more hawks in the BoE beyond the expected 3 (Sentence, Weale, and Dale) and the EURGBP could find itself below 0.8750 to challenge the lows at 0.8720.
The GBPUSD was already on the backfoot as the pair continued to fail at 1.6400/30 as we noted yesterday. The pair fell on technicals to 1.6250 but it was the news of US downgrade that sent the pair through the 1.6240 support to make new lows at 1.6160. Now that targets were met, let’s reasses the pair to see what cable could be offering next.
Price fell between the 50% and 61.8% Fibonacci retracement levels hitting our targets at 1.6250 and 1.6180. The 61.8% Fibonacci level at 1.6146 did hold suggesting that the pair is ready to reverse back higher to make new highs above 1.6430 highs. However, before bulls start to get ahead of themselves, study today’s price action on the 5 minute chart.
The correction off the lows can rally all the way to 1.6266, the 61.8% Fibonacci retracement level of today’s breakdown, and still be considered bearish. Further support to bears would be a daily close below 1.6250. Only a close above 1.6266 would change my bearish view of this pair.
Bears target 1.6110/00 next on the daily chart. A break below 1.6100 targets 1.6000.
The EURGBP looks like further declines. Even though it managed to end the week above 0.8940/50 previous resistance, it 1) respected the 50% Fibonacci level on the bounce after the breakdown from 0.8950 highs and 2) made lower highs on each bounce out of the 0.8810s lows.
A break below 0.8800 targets 0.8750. A hold above 0.8800 targets 0.8900.
The GBPUSD also looks like it has put in a top at 1.6430, which is the 38.2% Fibonacci level on the monthly chart. Even as price continues to hold above 1.6250, it is the failure at 1.6400/30 that gives the pair an increasingly bearish outlook.
Bears must hold below 1.6250 to build the momentum needed for price to target the 1.6182 50% Fibonacci retracement level. As long as price continues to remain below 1.6325 at the market open, price is likely to decline towards the 1.6250 support. A hold above 1.6250, however, will have price targeting 1.6400/30 highs again. A break above the highs targets 1.6500. However, only a daily close above 1.6430 will keep cable bullish.
The GBPAUD is a little more uncertain. After its breakdown below 1.5750, the pair became rangebound between 1.5440 and 1.5650. However, during Friday’s trading session the GBPAUD finally broke below the range bottom to a low of 1.5415. However, the pair closed the week back at 1.5440 signaling to me that this was merely a range extension to the downside rather than a breakdown. In addition, as GBPAUD broke to new lows, the AUDUSD failed to break above its highs at 1.0580.
In my opinion, this pair remains rangebound. Watch these various Fibonacci retracement levels to see if the downside momentum remains. However, I anticipate GBPAUD will rally back to the top of the range at 1.5650 as long as AUDUSD remains below 1.0580. A break above 1.5670 high targets 1.5750. If price remains below 1.5440, expect price to target 1.5300 support.
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Though cable behaved very bullish with every dip being bought ahead of the 1.6250 large quarter point, GBPUSD continued to find resistance at the 1.6427, the 38.2% Fibonacci retracement level on the monthly chart. Thanks to @pdtpatrick for sharing!
If cable continues to fail at 1.6430, then price will fall back to 1.6250. A break below this level, targets 1.6100 support and then 1.6000.
The EURGBP continues to find support at 0.8850. As long as 0.8800 continues to hold as resistance, this pair continues to be bullish. Target of 0.8900 and 0.9000 remain.
The GBPAUD is still rangebound. Price now at the top of the range and the AUDUSD below 1.05 major half point, watch GBPAUD to continue higher towards the 1.5750 large quarter point. This pair remains bullish as long as price is unable to break below 1.5425.
The GBPUSD started last week on a bearish note when it broke below the 1.6000 major whole number level. Since this level was the 61.8% Fibonacci level AND cable had always respected this Fibonacci level, I thought bears were in full force. Nope. The GBPUSD ended the week extremely bullish with its close above 1.6100.
As the market opens, watch how price behaves at 1.6100. If price can hold support at this level look for continued strength into the 50% and 61.8% Fibonacci retracement leves. Beyond there is the large quarter at 1.6250. This is the level to watch for clues about direction this week.
The EURGBP remained at the highs after a small correction took it back to the large quarter point at 0.8750. Price found support at this level (to the pip) and rallied to new 2011 highs at 0.8850. After the highs, price corrections now find support at 0.8800 to close the week outside the hesitation zone at 0.8829.
As long as price remains above 0.8800/25, look for price to continue to higher and move towards 0.8900 this week. However, if price breaks below 0.8800 watch how price behaves at 0.8750. A break below 0.8750 and price targets the now-support zone between 0.8620 and 0.8670.
The GBPAUD spent last week in a downward channel between 1.5660 and 1.5450 with lower highs and lower lows. Though price action remains bearish, the price never gained momenutm in either direction last week and closed the week at 1.5500.
As long as price maintains its downward channel and continues to put in lower highs, the GBPAUD remains bearish. However, the longer price remains at 1.5500 without breaking lower below the hesitation zone at 1.5425 then odds favor the bulls for a more significant correction of the price breakdown on the daily chart.
Despite finally breaking the 2010 1.6300 high, the $GBPUSD was unable to stage a breakout rally as many traders expected if price was to move above 1.6300. Rather, cable has been looking exhausted though it still does manage to maintain its bullish bias as it closed last week above 1.6250. Inflation and revelations of a 3rd BoE hawk have bolstered the $GBPUSD currency pair above the large quarter point at 1.6250. However despite the strong close, $GBPUSD opens the week trading below 1.6250 as the market opens. Choppy price action around 1.6250 suggest that the market is already looking ahead to the Bank of England interest rate announcement on Thursday. Should monetary policy remain unchanged, we could see the now anticipated sell-off in the $GBPUSD finally materialize. If so, 1.6100 remains the big level of contention between the bulls and the bears if the Fibonacci levels on the daily chart fail to hold. Below 1.6100, 1.6030 and 1.5990 become the levels to watch to the downside. If the BoE surprises the market with an interest rate hike, $GBPUSD will breakout towards the 1.6500 large quarter point and major half point.
The economic calendar is very light at the beginning of this week. Cable, therefore, will move based on the technicals. Immediately, at the market open, watch to see if 1.6235/40 support holds. Also, watch the Fibonacci retracement levels on the daily chart to see where bulls could step in ahead of the BoE interest rate announcement.
The $GBPAUD continues to hold the range it has forged out for nearly 2 months.
Price hit the top of the range at 1.6120 on Friday, found resistance and has since moved towards the middle of the range at 1.5950. If price moves below 1.5950, price will fall to the bottom of the range between 1.5830 – 1.5750. If price finds support above 1.5950, price will move back to the top of the range between 1.6070 – 1.6120.
The $EURGBP continues to remain bullish. Last week, I was concerned that the bears had stepped back in when price broke support at 0.8470. However, price did manage to find support at the level (on the candlestick daily close) despite the spike lows to 0.8458 and move higher to end last week near the 0.8600 highs.
As the new trading week opens, the $EURGBP maintains it bullish bias as it continues to find support at the former high of 0.8590 and trades around 0.8600 whole number. Bulls look to the highs at 0.8650 and 0.8670. Above there, 0.8700/50 remain the ultimate bull target. Fundamentally, the edge falls to the euro. Last week, after maintaining its monetary policy, the European Central Bank clearly signalled its intention to hike interest rates with very hawkish rhetoric during its press conference. As such, euro has caught a bid across the board. Several banks have now changed their calls to euro-bullish as a result of the fundamental shift in the market by the ECB. It also looks like an inverse head-and-shoulders chart pattern has formed on the daily chart of the $EURGBP which also supports the possibility of a breakout rally in the$EURGBP.
Being a sterling trader, here are the levels I am watching into the Bank of England’s interest rate decision set to be released in 30 minutes. The BoE is expected to leave rates unchanged, but after the Shadow MPC came out with an interest rate hike, an unchanged policy decision may be very bearish for GBP.
After the bullish breakout to 1.6278, cable has been trading bearish since making lower highs and lower lows. Despite that though the pair has been unable to complete the quarter to 1.60 finding considerable support at 1.6030 ahead of the 50% Fibonacci retracement level at 1.6015. 1.6000 is a 61.8% Fibonacci level as well as the bottom of the bid zone in the pair. A break below 1.6000 opens up bearish targets to 1.5950 and 1.5860.
I am still bullish the EURGBP and am watching for a break above 0.8500 or below 0.8470. The former has been signalled by yesterday’s price action that breached the 38.2% Fibonacci retracement level of the recent breakdown to the 0.8390 lows. However, a break below 0.8470 opens up bearish targets at 0.8400 and 0.8390.
Since breaking out from record lows at 1.5136, GBPAUD has been rangebound between 1.6100 and 1.5750. A break of the range is immienent and a central bank announement could be just the catalyst to get prices back trending again.
Remember to trade the reaction, not the headlines. Mind your charts and trade what you see!