Short term
Trade view / 03 August 2016 at 1:39 GMT

Corrective recovery underway for GBPUSD

Managing Director / Technical Research Limited
New Zealand

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 hourly chart
 Source: ThomsonReuters 
GBPUSD daily chart (click to expand)
GBPUSD daily chart

Source: ThomsonReuters  

GBPUSD weekly chart (click to expand)
 Source: ThomsonReuters  

— Edited by Gayle Bryant

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03 August
brian1983 brian1983
But possible of a rate cut tmr....
03 August
Max McKegg Max McKegg
Tight Stop
03 August
brian1983 brian1983
if it cuts to 0.25% tmr then gbp may fall below 1.30 n it is nt aud or nzd whr yields are still high after the cut. But I cant be sure if it will cut tmr or not as 0.50 bp is already v low. also imptly is the NFP data on Friday. if it is bad like May then ya shld see dollar fall again.
03 August
Patto Patto
As Max says, a rate cut by the BOE is already fully priced in. Mark Carney will have to pull a rabbit out of his hat if he wants GBPUSD to fall more from here - esp. as the USD is on the back foot.
03 August
brian1983 brian1983
I am neither bearish nor bullish on GBPUSD at this current price. But I believe GBP will fall ahead of the rate cut event. A long will probably be after the rate decision out, if it fails to meet market expectation.
03 August
Allied Allied
I have to agree with Brian, on the run up I'd expect Sterling to be sold. Yes if Carney only delvers the small cut that is priced in we may see a small rally but it will be limited ahead of NFP (that could bring back the USD bulls). Not good risk reward or the right time for this trade.
03 August
BuySellBuySell BuySellBuySell
My two cents worth: 1.2 coming up ..
03 August
brian1983 brian1983
it may cut 0.40bps to 0.10% with some probability. tricky is short be4 service pmi or short after the adp at the top if US data is bad. or it may go all the way down if uk service pmi is bad n us adp is gd.
03 August
goldfinger goldfinger
Difficult to gauge but sterling going south short term, I would have thought


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