The GBP/USD pair rose to an intraday high of 1.5506 on Tuesday before the offers pushed the pair back to 1.5442 in the NY session. Overall, the pair is still remains stuck in the 100-pip range of 1.5410-1.5510. Carney’s testimony turned out to be a non-event, while the markets ignored usual hawkish comments from BOE’s McCafferty. The upbeat US housing starts data also failed to have any major impact on the pair.
Focus on commodities and UK public sector net borrowing figure
The commodity prices continue to trade lower and are likely to weigh over the UK’s mining heavy FTSE equity index. Risk aversion in the equities could send the EUR/GBP pair higher and keep the gains in the GBP/USD pair under check. Meanwhile, Sterling could find support from the public sector net borrowing figure, which is expected to have dropped in September.
GBP/JPY cross could push cable higher
The GBP/JPY cross took out strong resistance around 185.00 levels on closing basis yesterday. The move has opened doors for a rally towards 188.00 levels. The rally in the cross appears more likely after a sharp drop in the Japanese exports reported today triggered fears of recession. Markets may penalize the Yen on increased hopes of more QQE from the Bank of Japan. The rally in the GBP/JPY cross is likely to push the GBP/USD pair higher to 1.5480 levels.
Technicals – strong resistance at 1.5481
Sterling’s daily chart shows the falling trend remains intact. The trend line resistance is seen at 1.5455, followed by a major resistance at 1.5481 (100% Fib expansion of 1.5107-1.53878-1.5200). An upside break from the range of 1.5410-1.5510 appears likely in case the pair sees an hourly close above 1.5481 today. In such case, 100-DMA resistance at 1.5490 could be taken out at one go and the pair could make a run at 1.5557 (127.2% Fib expansion). On the lower side, only a daily close below 1.5387 (Oct 13 high) would turn the outlook bearish.
EUR/USD Analysis: Range play could continue
The EUR/USD pair ran to a high of 1.1387 on Tuesday on the back of weakness in the European stocks, but pared gains in the NY session due to upbeat US housing starts data and recovery in the European stocks. The pair eventually finished 1.1344 levels. The spot ticked slightly higher in Asia to 1.1367 levels.
Focus on stocks
The weak Japanese exports figure further highlighted the anaemic demand in the global economy. Hence, there is very little reason for the commodity prices to tick higher today. Consequently, the European stocks could be weighed down by the losses in the commodity prices. Thus, EUR/USD appears poised to make another attempt at 1.1380-1.14 levels. However, the aims could be capped again at 1.1380-1.14 as markets expect the ECB to announce more easing measures- QE extension/expansion and/or rate cut. Meanwhile, the downside appears capped around 1.1327-1.13 levels.
German yields rally
The benchmark 10-yr German bund yield rallied on Tuesday from the near two-week lows. Yields fell last week on hopes the ECB would do more. The yield currently trades at 0.637%; just above strong support seen at 0.632% (Oct 7 high). The yield is thus pointing higher, which may keep the EUR on a positive footing. The US-German 10-yr yield spread has narrowed to 143-144 basis points from 148 bps seen on Monday.
Technicals – Euro going nowhere
The Euro’s daily chart says the currency is going nowhere at the moment. A break above 1.14 would open doors for 1.1460 (Sep 18 high), followed by a rise to 1.15 handle. On the lower side, a break below 1.13 could push the spot lower to 1.1261 (50-DMA).