Forex Technical Update

Prev: GBP/USD May be Completing an Expanded Flat (8/2)

GBP/USD 8/3/2011 1H Chart
Muted Reaction after ADP Non-Farm Employment Report:
- The GBP/USD appears to be following the scenario of an expanded flat. A bounce from the 1.6250 area is now cracking 1.64.
- The market paused ahead of the US session, as the market awaited the ADP Non-Farm Employment Report, sometimes seen as a predictor of the NFP on Friday which is more meaningful for the market. However, we all know the "inconsistency" that can arise between these two reports.
- The bettern than expected numbers (114K vs. 101K) is not that impressive given the previous numbers was revised from 157K to 145K.
- This can bring risk aversion, and counter-intuitively might give the USD a boost.
- But the market can easily overlook this. Then a break back above the current consolidation resistance at 1.6409 will be an even more significant clue that the market is following the bullish scenario.
- The RSI in the 1H chart should not break below 40, and preferably stays above 50 in the bullish scenario. The RSI in the 4H chart should break above 60 to signal that the momentum is no longer ranging (stuck between 40 and 60), which is a leading signal that the price action may also break above the recent range-bound action.
Bullish Scenario:
- Yesterday, I mentioned "A push back above 1.6460 should suggests a bullish continuation towards the 1.6546 pivot (78.6% retracement), and the 1.6745 2011-high."
- This holds, but we still have to clear 1.6440, and then 1.6475 highs before confirming the bullish continuation.
- Before that occurs, a throwback can be allowed back towards 1.6330. But if the bullish scenario is to remain apparent, this support should hold for a a rally attempt to break 1.6440, or if that already happened, to break above 1.6475.
GBP/USD 8/3/2011 4H cHart

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Fan Yang CMT
Chief Technical Strategist