Forex Technical Update
The GBP/USD's correction rally developed in a short-term rising channel but took a different form when it broke above a medium term declining channel. The 1H chart shows the acceleration above both a larger channel's resistance and the 200-period simple moving average. The RSI shows that there is short-term bullish momentum when it tagged above 70. The market fell in Wednesday's US session in an ABC manner but was supported in the Asian-European sessions.The RSI failed to sustain a break below 40, and thus the correction rally momentum is maintained.
As the market gears up for the US session, we see a test of the 1.57 level again, and this resistance holding. US jobless claims data as well as final revision of Q2 GDP. 8:30AM EDT, when these releases come out, is therefore a temporal pivot. If after 8:30, we see a push above 1.57, the GBP/USD is likely to extend the current correction rally toward the next fibonacci retracement level at 1.5820 (38.2% retracement). A more aggressive outlook can be toward the 1.5870-1.59 pivot area.
If the 4H RSI can push above 60, price action is likely pushing above 1.57. But since this is counter-trend, and there is still much pressure on the Sterling from the prospect of QE by BoE, this correction rally might need a throwback to test the 1.57 level as support before the market builds confidence toward higher retracement such as the 38.2%, 1.5820 level.
Failure to break 1.57: If the US session does not provide the strength to push above 1.57, the market continues to be in sideways consolidation. There should be support at the 1.5450-1.5480 area, but if this is broken, our correction rally should be over, and the market might be looking for the bearish continuation scenario. The first target in this outlook would be the 1.5330 low.
Fan Yang CMT
Chief Technical Strategist