It should be an action-packed closing of the week for GBPUSD. Markets have fully priced in a 25 basis point cut by the Bank of England on Thursday but it’s possible, indeed probable, Governor Mark Carney will announce other policy changes, perhaps something out of left field.
As the Bank of Japan showed last week, the days of simply feeding the markets lower and lower interest rates may be coming to an end. (See today's article: Japan bond selloff could be sign of things to come.
) Meanwhile the US dollar remained under pressure in Asian trading this morning as markets doubt the resolve of the Federal Reserve to do anything but talk about rate hikes this year. This view was supported by flat inflation numbers yesterday: the Fed’s benchmark measure, headline PCE came in at 0.9% year on year, while the core rate also held steady at 1.6%.
Later today we will see the ISM non-manufacturing survey out of the US, but the big release comes on Friday: the jobs report. Expectations are for a jobs-added number in the 165,000-185,000 range. Anything outside this will trigger more gyrations in the dollar.
Management and risk description
Since the Brexit carnage (with sterling recording a low of 1.2800 on July 7) GBPUSD has been mounting a corrective recovery.
From an Elliott Wave perspective, I am interpreting sterling to be in the early stages of a c-Wave rally (see daily chart below) with potential to reach the mid 1.3700s over coming days. This is supported by a potential (developing) classical charting Inverse Head and Shoulders formation (refer daily chart).
In the shorter term, sterling displays a completed Inverse Head and Shoulders on the hourly chart (refer hourly chart below) and with support today around the 1.3300 level (i.e. Neckline support) there is an upside objective of 1.3545.
Entry: GBPUSD is seen as a buy today at 1.3315/1.3295.
Stop: 1.3268, initially.
Target: 50% at 1.3534 and 50% at 1.3733.
Time horizon: at least several days.
GBPUSD hourly chart (click to expand)
GBPUSD daily chart (click to expand)
GBPUSD weekly chart (click to expand)
— Edited by Gayle Bryant