Could GBP/USD head higher this week?
Fawad Razaqzada May 14, 2018 7:47 AM
The pound and in particular the GBP/USD currency pair looks as the most interesting one to watch this week.
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.
Source: eSignal and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.