GBPUSD and GBPJPY
The UK’s July services PMI underwhelmed at 53.5, which is the lowest headline reading of the survey since April and follows June’s 55.1 outcome. The median forecast had been for a much more moderate deceleration to 54.9. The details of the report showed job creation to be at its weakest since August 2016, while the pace of incoming new work also abated. Overall, with the manufacturing PMI having ebbed to a three-month low, the PMI surveys show Q3 has started with some abatement in economic expansion, although a tight labour market is evidently still underpinning wage demands (BoE Governor Carney said yesterday that rising wage pressures was a justification for raising interest rates). The surveys also highlight the activity-curtailing affects of Brexit uncertainty, which is something that doesn’t look to be going away anytime soon, and where, at the present juncture, the risk of a no-deal scenario is uncomfortably high.
The UK data released today kept the Pound for the 2nd consecutive day the biggest loser, showing an average 0.5% decline against the major currencies at prevailing levels. GBPUSD posted fresh 2-wk low of 1.2975 earlier, extending post BoE losses, while in long term the Brexit uncertainty crimping activity. Cable is currently sitting below 1.3000 handle, with next level to be watched at 3 -week low at 1.2956. The pair looks set to make this the fourth consecutive down week, needing to close out today below 1.3000. On the month-on-month comparison, Sterling is down by an average 0.7% against the Dollar, Euro and Yen, and recent weakness was referred to by the BoE in its Inflation.
Immediate Resistance holds at 1.3026 ( latest swing high) and in medium term Resistance comes at 1.3070 (latest low fractal in Daily chart). However overall pictures supports strongly the increase of negative momentum, with any swing high to be consider as a possible sell opportunity. Both RSI and MACD indicators rising to the downside.
Meanwhile, regarding GBPJPY pair, as I wrote last Monday: “ The pair has been trading with little overall direction since early 2017, pulled lower during risk-off phases in global markets and pulled higher when markets are more focused on underlying fundamentals…..GBPJPY found Support today at last week’s low fractal at 145.20, since it rebounded from that area up to the 145.87. It is meanwhile holding resistance between the 50-day MA and last week’s peak, at 146.40-146.50 area.
In the 4-hour chart, on the upside only a breakout above the immediate Resistance at the 50-period MA, which coincides with the 50% Fib. level set since April 2017, at 146.13, could imply the retest of the long term Resistance at 146.40-146.50. Further gains would open the doors towards Fibonacci extension 61.8, at 147.50.
To the downside and as the GBPJPY is in a bearish mode since July 16, a break below the immediate Support at 145.20, suggests the increase of negative momentum and hence the pair is likely to be pushed to June’s low levels at 143.77 – 144.30.”
Since last Monday, the pair retested the key Support area at 145.20, however it failed to extend losses below this level up to now. Meanwhile, as suggested in the post in July 30, the pair indeed broke Resistance at 146.13 (midway of week’s drift), and extended its gains up to 147.13 before returning back to 145.00 area.
This overhead demand this week above 147.00 barrier, along with the formation of higher lows in the weekly basis and the failure of price to cross below 145.20, suggests the gradual increase of the positive momentum in long term. Therefore a rebound from the particular Support level, would imply that the bulls appeared to regain control.
However, the evening star formation in the Daily chart, and the negative momentum indicators in the long and medium term charts (daily and H4), continue to support the continuation of downtrend. RSI is tracking lower challenging oversold barrier, whilst the MACD lines are now pulling further to the downside. Hence as market traditionally sells into strength, and as long as GBPJPY remains below 147.30-147.50 area (38.2% Fib. level since April’s decline), any swing high would imply to the retreat towards 145.00 level.
As stated: “To the downside and as the GBPJPY is in a bearish mode since July 16, a break below the immediate Support at 145.20, suggests the increase of negative momentum and hence the pair is likely to be pushed to June’s low levels at 143.77 – 144.30.”
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Andria Pichidi
Market Analyst
HotForex
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