The GBP/USD pair ran into offers at the high of 1.5383 on Friday, following which the pair breached the 200-DMA support and ended lower at 1.5306 levels. The primary driver of the price action last week was the weaker USD. Better-than-expected UK industrial production also added to the bullish momentum in the pair.
Awaits Fed Speak
Global holidays could keep the volume low today while the economics calendar is empty across the Europe and in the US. Consequently, the focus would entirely be on the speech from the Fed policymakers. It won’t be surprising to see the policymakers trying to talk up 2015 rate hike bets, although markets no longer believe the rate hike could happen in 2015. As per CME Fed watch data, a 25 basis point rate hike is seen happening in March 2016. Meanwhile, a recent WSJ survey, more than 60% of economists are looking for the Fed to raise interest raise before the end of the year. However, the uptick in gold prices tells me that markets do not see Fed rate hike anytime soon. Still, hawkish comments from Fed officials could weaken Sterling, especially if it is below 200-DMA by then.
Technicals – Sharp losses below 1.53
Sterling’s drop below 200-DMA on Friday after three consecutive sessions of gains has raised the prospects of a technical correction, however, sell-off is seen below 1.53 levels (23.6% of 1.5930-1.5107). A break below the same would open doors for a drop to 1.5248 (50% of Apr-Jun rally). But the probability of a re-test of Friday’s high at 1.5383 is high since the spot bounced off 1.53 today to rise above its 200-DMA located at 1.5318 levels.
EUR/USD Analysis: Bullish break on charts, Eyes set on Sep high at 1.1460
With no major data due for release today, the pair lacks fundamental trigger and at the most could take cues from the sentiment in the equity markets. China rally picked up speed and that could keep Europe equities happy and EUR gains under control. Still, technical charts present a bullish story.
On the daily chart, the EUR has breached two key trend line resistance levels last week on closing basis, represented by green line and black line. The breakout also indicates the recovery from the March low of 1.0469 may have resumed. Consequently, the spot appears to be on track to test the September high at 1.1460. The immediate downside appears restricted at the trend line (green) support 1.1324. Only a daily close below the same could see the pair re-test 1.1250 (black line).
The upside breakout on the EUR/USD discussed above also increases the probability of an inverted head and shoulder breakout in the EUR/GBP pair.