The Interesting GBP/USD, Now What?

faithmight

The forex markets have seen some interesting moves in the 1st quarter of the new year. The end of the 1st quarter is a good time to size up the markets regardless of the time frames you prefer.

Sterling lost significant ground last quarter to the US dollar. The $GBPUSD fell 1,678 pips though ended the quarter with a strong corrective rally. This end-of-quarter rally was actually GBP’s second attempt to rally off the lows made at 1.4780 made back in March. It is interesting that despite the strong rally (check out that daily chart below), the pair failed to break 1.5300, much less challenge the previous weekly high at 1.5380. So quite naturally as a new trading week and quarter begin, traders want to know where the $GBPUSD will go from here.

The daily chart holds to interesting developments. First, and most obvious, is the incredible near reversal bullish wave that lasted for 5 consecutive sessions. What a strong rally! After such a strong rally a correction is expected. And a trend wave that lasts more than 3 days on the daily chart has a strong tendency to fail to continue its trend with subsequent trend wave. Second, is the triple top at the 1.5300 level. This bearish chart formation indicates a breakdown in price to the downside.

A drop in cable will target 1.5180 hourly support on a failure of 1.5250. A break there should first find support at 1.5100/20 area of support. Below there is the 1.5050 with 1.5046 nearby, the 50% Fibonacci retracement level on the daily chart. As long as 1.5300 continues to fail to the upside, we should see more downside for cable. A break above targets 1.5380, the previous high and then 1.5400 with 1.5419, the 38.2% Fibonacci retracement level on the weekly chart.

The 1st full week of the new quarter kicks off with a slew of economic releases. However, most interesting are the central bank meetings in both the US and the UK. The Federal Reserve meets later today to discuss the discount rate and releases minutes from its last meeting on Wednesday. The US economy has been putting out consistently positive numbers. NFP culminated last quarter with nice evidence of an economic recovery taking place in the US. It is widely expected that the Fed hikes the discount rate at today’s meeting. Despite the great unemployment numbers, the equity markets may not like that news thus possibly fueling a rally in the USD. Later in the week, the Bank of England makes their interest rate decision. In contrast, given the consistently weak numbers from the British economy, it has been speculated that the Bank of England still has the door open for more quantitative easing. Any hints of that from BoE officials on Thursday could be devastating for the $GBP and would be enough to restart a downtrend that has already corrected quite handsomely (confirmed by Fibonacci lines on the weekly chart). Sizing everything up, the week looks much better for the USD than for the $GBP.

Be mindful of the calendar and the newswire. China-US relations are already in the spotlight early in the Asian session. Risk appetite can really make things interesting. Watch those chart levels and trade what you see, not what I think.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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