Sterling has been blasted lower after BoE governor Carney cast doubt on a previously pretty-much-expected UK May rate hike. The EU's rejection of Britain's latest Brexit-Irish border plan only served to deepen the rot.
Article / 12 July 2016 at 12:19 GMT

Sterling relief rally may have further to run

Technical Analyst / FuturesTechs
United Kingdom
  • Cable must close above 1.3155 to sustain rally
  • Next upside targets would be 1.3240, 1.3450, 1.3535 and 1.3647
  • EURGBP has had a weaker tone since last Wednesday 

 A rate cut is widely expected but the Bank of England won't necessarily deliver. Pic: iStock

By Clive Lambert

Theresa May's impending investiture as UK prime minister has seen a small recovery for sterling. How does it look on the chart?

Since hitting 1.2798 last Wednesday the ship has steadied somewhat for Cable and the last few sessions of last week were a series of Doji candles. Yesterday was a small "Hammer", and today we've seen further gains to a high of 1.3189, and we're currently sitting around a level at 1.3155 that we need to close above tonight (New York close) to add weight to the idea that a bottom is in place, at least for now, and that we can see a bit more on this "relief rally".

The next upside targets would be 1.3240, 1.3450, 1.3535 and 1.3647. We would expect sellers to return at one of these and would be watching for signs of upside rejection as and when they are tested.

Overnight price action has created support levels to reference at 1.3094 and 1.3025.

Chart 1: GBPUSD Daily Chart:

Chart 2: GBPUSD Monthly Chart

GBPUSD Monthly
In EURGBP we have seen a weaker tone since last Wednesday and this morning broke support levels at 8490 and 8446 although the latter is a level that needs to be breached on a closing basis to really persuade me that there is further retracement due. I had cited 8416 as a support level to clients in my morning report and so far this is holding firm. Below here look for a move back to 8243. This is my favoured skew.

Retaking 8446 and 8489 is the bulls' priority for the rest of today, otherwise the retracement "play" is on.

Chart 3: EURGBP Daily

Chart 4: EURGBP Weekly
Obviously the big event of the week is the Bank of England rate decision on Thursday. I've got a sneaky feeling it'll be unchanged – governor Mark Carney's way of saying "Keep Calm and Carry on!"

– Edited by Clare MacCarthy


Clive Lambert is chief technical analyst at FuturesTechs

Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
UPDATE: The 1.3450 target suggested for Cable has just been hit on the BoE "standing pat".

In EURGBP we saw a brief move to 8252, not too far away from our 8243 target, before the market swiftly recovered.


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