Forex Technical Update

Previous: GBP/USD Remains in Flat Consolidation to End Week;  1.5530 Set as Important Pivot (9/30)

GBP/USD

GBP/USD

The 1H GBP/USD chart shows a market in the process of confirming the bearish continuation scenario. From the price action side, we are observing lower lows and lower highs, and more importantly a break below the 200 period simple moving average as well as a pivot at 1.5530. The RSI broke below 40, and almost kissed 30 (a stronger push below 30 would have been preferred in the bearish case). Nonetheless, the bullish momentum is technically done.

Manufacturing PMI Candle: Note that there was a very volatile candle representing the 4-5AM EDT candle. The UK Manufacturing PMI came out at 51.1 for August, bettering forecast of 48.9. The previous reading was also revised up to 49.4 from 49.00. The candle was basically a sign of a failed bullish attempt. The battle line where GBP/USD retreated is 1.5588. Therefore, as we gear up for the US session, if the market breaks above 1.5590 and the 1.56 psychological pivot, the bearish continuation is shelved for further consolidation and correction to the upside.

Price action so far is within that 1H candle, but in a way, this is an outside bar relative to the 3 previous hourly candles, and thus has bearish bias. If it falls below the low of that reactionary candle near 1.5480 the bearish continuation scenario gets confirmation. Below 1.5480, the 4H chart shows that the next level of support is likely last week's low at 1.5330. A break below this is the next step in the bearish continuation confirmation. The RSI should break below 40, and preferable also 30 to signal return of bearish momentum. 

Risk Events: From the UK side, Bank of England Interest Rate decision will shed light on the prospect of QE. Language that confirms this money-expansionary stimulus should weaken the sterling across the board.

From the US side, the market will be waiting for the Non-Farm Payroll to come out on Friday, with a forecast of merely 51K jobs added in September, after the August number was flat.

Ahead of these event risks, the GBP/USD is not likely to break below 1.5330, but if it does close below this level this week, we can look for further bearish continuation. 1.50 and 1.4775 are next significant levels of support below the 1.5330 low.

GBP/USD

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Fan Yang CMT
Chief Technical Strategist

FXTimes