flash crash seen in gbpusd may trigger a mini capitulation on the bears 1833262016

• Big spiked down to print a low of 1.1940 during thin liquidity conditions at 0700 am Singapore time before the opening of Japan and Singapore markets. Market talk has pointed to some algos malfunction from a spot trading desk that disrupted bid and offer quotes which caused stop-loss to be triggered below 1.2600 and option barriers hit at 1.26/1.25.
• Technically, the GBP/USD has challenged “big support” at 1.2440 and it is now trying to trade back above it. If we can have an hourly close above 1.2480 during London hours, it may see a rebound back towards the significant resistance of 1.2780/2880. A break above 1.2880 seems to be hard at this juncture unless we get a very weak U.S. nonfarm payrolls data for September (175K consensus) that come in at 150K or below.

GBP/USD

(Click to enlarge charts)

Key elements

• The long-term technical picture remains bearish for the GBP/USD since the breakdown of the former “Expanding Wedge” support from the February 1993 major swing low of 1.4068 last month. The next long-term support rests at 1.0520/0.9530 zone (see monthly chart).
• The key long-term resistance now stands at 1.2880/3170 which is defined by the pull-back resistance of the bearish breakout from “Expanding Wedge” and a Fibonacci retracement cluster (see monthly chart)
• Since the start of this week, the GBP/USD has continued to sell off after U.K. PM Theresa May’s weekend speech that favoured a ‘hard Brexit”. In addition, she has also questioned the effectiveness of Bank Oof England’s current quantitative easing policies that are not improving the lives of the “man in the street”. This morning Asian session sell-off has led the GBP/USD to challenge a Fibonacci cluster defined support at 1.2440 with oversold readings seen in momentum oscillators (daily RSI & 4 hour Stochastic).
• The GBP/USD has now started to stabilised at the 1.2440/2350 zone.

Key levels (1 to 3 days)

Pivot (key support): 1.2440/2350

Resistances: 1.2480, 1.2780/2880

Next support: 1.1940

Conclusion

Technically, the GBP/USD has reached a potential short-term capitulation where a potential rebound may occur at this juncture. As long as the 1.2440/2350 pivotal support holds and a break above 1.2480, the GBP/USD may see a potential “relief rebound” towards the 1.2780/2880 key resistance.

However, a break below the 1.2350 is likely to reignite the bearish tone to see a decline back to retest today’s swing low area at 1.1940.

Charts are from eSignal

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