GBP/USD Daily Chart - October 08, 2017
GBP/USD had one of the worst weeks of the past few months in light of increased friction between Theresa May and other members of her ruling party regarding Brexit terms. May's leadership is being questioned ahead of the fifth round of Brexit talks which are scheduled Monday. Weaker than expected economic data out of UK are also to blame in conjunction with US In the past week, purchasing managers indexes for the UK construction and manufacturing sectors in September were both weaker than expected. However, the PMIs are seen as soft data and the week to come sees official data on industrial production, manufacturing output and trade. If they turn out stronger than predicted, that could revive forecasts, which are already high, that a UK interest rate increase is just around the corner.
Technically speaking GBP/USD is trading in very important price levels with 1.305 being a major support in conjunction with other tools we use to identify reversal areas. Our immediate target in GBP/USD is 1.333 and failure to break with force above that level will take the Sterling to 1.2575. Even though past year's uptrend appears slow, it remains in tact as long as 1.2575 is not broken. Our long term target for GBP/USD remains above 1.40 before any new lows and this view is reiterated after analyzing US Dollar index which is expected to edge lower.
EURUSD Daily Chart - October 08, 2017
EUR/USD and GBP/USD have been trading in a very similar pattern, however Euro's rally is steeper and more convincing. The most important resistance in the short term is 1.1882 and the reason why we believe this resistance will be tested before EUR/USD goes any lower is due to constant bottoming tails in the lower band of Bollinger® as well as other proprietary measurements and indicators which reiterate this scenario. In the even that EUR/USD fails to break 1.1882 with force, we will test 1.1282 - 1.10932 and it would still be a healthy corrective move for the general uptrend. Euro's uptrend is in danger only if price breaks below 1.082. The second scenario however is the one we assign higher probabilities with an immediate target of 1.233 - 1.236 which coincides with being the second important resistance which can make-or-break EUR/USD future's rally.
US Dollar Index Daily Chart - October 08, 2017
We expect the general downtrend in the US Dollar to prevail despite the short term relief rallies. The highest probability price pattern is illustrated in the chart above with immediate targets being 92.63 and lower 92.0. Only after a test of this area will we have an indication on whether will the US Dollar bounce for a larger corrective move or continue straight to new lows in order to complete its cycle. In the event that support of 93.65 holds, a new local high is on the table (less likely).
It is exactly the technical and fundamental view in the US Dollar which increases the odds for the above mentioned scenarios in the EUR/USD and GBP/USD price patterns. In any case, USD leans on the bearish side unless FOMC Statement due Wednesday October 11 surprises the markets. This is unlikely given the recent disappointment in the Non-Farm Employment data released last week.