This Tuesday is going to be huge for British pound traders. The cable dropped almost 1000 pips after failing to break 1.45 resistance four weeks ago. Three consecutive bearish weekly candles were caused by fundamentals, which disappointed traders in their expectations for much more tight BoE monetary policy than it’s been previously anticipated. Economic reports showed weaker figures, Brexit negotiations with EU are not giving any light at the end of the tunnel, UK government is divided as never before. Add here demand for the greenback on geopolitical tensions, concerns of much slower worldwide economy, rising U.S. Treasury yield - and you will get enough factors for the pound to slip not only below 1.40, but also to test 1.35 support.
Last trading week showed a slowdown in USD rally. Mainly because of U.S. Inflation failed to meet expectations, which eased investors fears in four Fed rate hikes this year. Stock indices picked up a momentum, closing the trading week on a positive note. Most of the major currencies, including pound had a breather after strong USD rally. The biggest question is about what’s next? Will we see a consolidation range before finding next direction? Or will the greenback face a bearish correction?
Technically speaking, there is a huge probability for the DXY (US Dollar Index) to test 91.00 level before any further development, and here is why. First of all, there is a clear and strong reversal bearish signal - Doji candlestick pattern. DXY could not break through strong resistance - Simple Moving average with period of 55 weeks. This fact is not surprising, cause the index has been below SMA55 exactly one year-to-date, and it would not be easy to break it through with the first attempt. Simple rule in trading from levels: ‘failed to break - pullback’ is in play.
But let’s get back to the cable analysis itself. GBP/USD is going to experience a test of fundamentals factors today, extremely important for further Bank of England policy. Earnings and employment figures are scheduled to release and these reports are going to show is the British economy strong enough to withstand tightening from the regulator. In case if the report will beat expectations, we might see the pound rallying across the board.
GBP/USD technical analysis tell us about a local bottom on daily chart around 1.3500 level with several failed attempts to break it. RSI14 is still in oversold territory, showing slight signs of bullish divergences. Simple Moving Average with 55 days period, which used to support the pound several times since November 2017, has to be the nearest target for cable correction in case if the fundamentals will come out in favor for pound bulls. Range of 1.3850 - 1.3900 looks to be lucrative enough to take profit for aggressive traders.
