Forex Technical Update
The 4H GBP/USD chart shows a market in a small counter-trend channel, which is anchoring out of a larger declining channel.The latest 4H candle is showing a strong breakout to the upside. This breakout will reflect a loss of bearish intent in the short to medium term, confirmed if the RSI reading also breaks above 60. The next level of resistance is near 1.57, which is where the market pivoted right as the FOMC announced operation twist last Wednesday. A break above this suggests we are in a very significant correction. A break above 1.5750 confirms bullish take-over and targets 1.59-1.5950.
The 1H chart shows that the current rally is testing the 200-period simply moving average. Therefore, the breakout so far has yet to be confirmed. A sustained break above 1.56 is needed to show short-term bullish intent. The RSI also needs to push above 70. While the market may not be hitting all signs of a bullish market this week, it is leaving the bearish scenario on the shelf. Only a break below a pivot zone near 1.55 can return the GBP/USD back to the bearish mode.
BOE, QE? After a sharp slide last week, it is not surprising that the market is consolidating. The GBP/USD has had a more pronounced correction than the EUR/USD, which is just showing signs of bottoming. The market has already been pricing in the prospect of QE to be announced during next week's Bank of England meeting next Thursday. With this prospect looming therefore, the GBP/USD's rally should not be expected to push above 1.5750, but instead wind up in a more sideways range.
Fan Yang CMT
Chief Technical Strategist