The GBP/USD pair witnessed a technical recovery on Monday as the Asian and European desks ditched the US dollar. The cable rose to a high of 1.5128, before trimming gains to close the day around 1.5113. the USD did find some love in the US session, but still, the markets chose not to extend Friday’s USD rally. No major UK data is due for release today . US calendar is light this week with only retail sales due on Friday, which too may not alter rate hike bets now as the markets now consider the December rate hike as a done deal.
Technicals – Retest of Friday’s low?
Sterling’s recovery to 1.51 on Monday following a 400-pip sell-off last week represents a technical correction triggered by oversold RSI on the hourly and 4-hour time frame. Usually the first strong sign of reversal from a sharp sell-off; like the one seen last week; comes in the form of bullish RSI divergence. At the moment, the hourly RSI is back above oversold region and the 4-hour RSI is attempting to recover above the same. However, the daily RSI is below 50.00 and is still yet to hit the oversold territory. Overall, a re-test of Friday’s low at 1.5025 and a possible dip to sub-1.5 levels appear possible. On the other hand, a failure to break below 1.5087 (61.8% of Apr-Jun rally) could be followed by a rise to 1.5163 (Sep 4 low).
EUR/USD Analysis: Inverted hammer & weak stocks could trigger recovery
The EUR/USD pair clocked a high of 1.0762 on Monday, before the USD found some love in the NY session resulting in a daily close at 1.0751 levels. At the moment, the currency pair is trading around 1.0748 levels.
Focus on Stocks
As mentioned in the Tip TV slide yesterday, the increased odds of Fed tightening in December did result in the drop in the US and European equities on Monday. However, the EUR saw a weak recovery as the sentiment is extremely bearish (due to Fed-ECB divergence). Most major players have called for the pair to re-test 1.05-1.04 and the talk of parity is slowly gaining traction. But the stocks could play a spoilsport. The investors could get nervous and ditch stocks as we head closer to December Fed meeting, thereby triggering EUR recovery. The China CPI number printed less than expected and could trigger speculation of more easing. But talk of PBOC easing is unlikely to support equities, since the Chinese rate cuts in the last six months have had little long lasting effect on risk appetite.
Technicals – Inverted hammer on daily charts
The inverted hammer on the daily charts, coupled with the oversold nature of the RSI on the intraday timeframe has increased the odds of a technical correction in the pair. The Euro is likely to take out 1.0758 (76.4% of Mar-Aug rally) and rise to 1.08 levels. Above 1.08, the pair faces multiple resistance in the zone of 1.0820-1.0850 area. On the downside, a repeated failure to rise above 1.0758 followed by a break below 1.07 would expose 1.06 handle.