In mid-November I made a case for a lower Sterling over the ensuing weeks as both the fundamentals and technicals pointed to a bleak outlook. Sure enough, after it broke below the noted 1.5865/75 critical support level, Cable saw a rather sharp decline and ultimately reached the initial target of 1.5630/35 (mid-October low) in the process. After the Thanksgiving holiday here in the U.S., GBP/USD retraced nearly 50% of the November decline before correcting back lower once again. Interestingly, I believe Cable may be faced with this unique combination of technicals & fundamentals aligning once again, however in the immediate short-term one final bounce could ensue before we see a larger decline.
The next 72-hours sees a few top-tier data announcements out of the United Kingdom:
- Wednesday – Oct. Industrial Production (consensus -0.3% m/m, -0.7% y/y)
- Wednesday – Oct. Manufacturing Production (expected -0.3% m/m, 1.4% y/y)
- Thursday – BoE Interest Rate Announcement (exp. hold rates at 0.50%)
- Thursday – BoE Asset Purchase Target (con. Maintain £275B)
- Friday – Nov. PPI Output (exp. 0.0% m/m, 5.3% y/y)
With that said, I would not be surprised to if the BoE comes out rather dovish and consequently see GBP come under pressure.
Now let’s take a look at what the technicals suggest:
- 13-day sma crossover below daily 144 & 169 EMA’s (bearish)
- Elliot Wave shows a well-defined impulse wave lower from the Nov. high
- Rejected upon retest of 1.5865/75 prior support turned resistance
- 21-day sma still proves resistive
- Daily RSI’s made a Double top around the 65 level and then broke below critical trendline support – Changing the bias from higher to lower
- Trading within a potential falling wedge formation (bullish?)
- Daily Tenkan Line resides just below current prices near 1.5600
- Has so far maintained above the 61.8% retracement around 1.5560
Therefore, I believe if you have yet to reduce your exposure already into the initial target near 1.5630/35 over the past few weeks, this may be a good opportunity to do so. Furthermore, moving the stop towards breakeven on the remainder of the position (around 1.5850/80) may be the prudent thing to do ahead of the BoE announcement on Thursday (as well as the ECB and EU summits this Thursday & Friday). Ultimately, I would look for potential corrections back towards 1.5760/80 (50-day sma) to reestablish the partial position just reduced, meanwhile I’m still seeking a move towards the October low near 1.5270/80 and potentially even see a test of the psychological/option related 1.5000 level towards the end of the year.