An extended period of quiet markets came to an end on Friday with a spurt in volatility, with the US Dollar turning sharply higher across the board after the Fed Chair Janet Yellen's speech at Jackson Hole symposium and comments from various Fed officials fueled speculations of an eventual Fed rate-hike action in the near-term.
After an initial downside reaction, hawkish comments from Fed Vice Chairman Stanley Fischer increased investors’ confidence that the central bank would go ahead and raise interest-rate by the end of this year and triggered a sharp greenback rally, with the GBP/USD pair reversing from a fresh 3-week high to erase over 50% of its weekly gains while the EUR/USD pair tumbled below 1.1200 handle to retest 100-day SMA support.
With UK banks closed on Monday in observance of the Summer Bank Holiday, trading activity is likely to remain light during European session. Later during NA trading session, release of Core PCE Price Index (Fed's preferred inflation gauge), personal income and spending data would provide fresh impetus in the FX market.
Technical outlook
GBP/USD
The pair is reversing from an important confluence resistance near 1.3275-80 region but has managed to hold 1.3100 round figure mark support. A follow through selling pressure below 1.3100 handle is likely to drag it immediately to 1.3040 horizontal support area, which if broken decisively seems to turn the pair vulnerable to head back towards retesting a strong support around 1.2900 region.
Meanwhile on the upside, 1.3190-1.3200 area now seems to act as immediate resistance above which the pair seems to make a fresh attempt to head back towards 1.3275-80 confluence resistance, comprising of a short-term descending trend-line resistance and 50-day SMA. Only a convincing strength above this strong resistance would negate any near-term bearish bias and open room for further recovery in the near-term.
EUR/USD
Currently trading back above 1.1200 handle, the pair is rebounding from 100-day SMA support. The recovery is likely to gain momentum above 1.1220 immediate resistance, nearing 38.2% Fibonacci retracement level of 1.0952-1.1366 recent up-move, above which the pair seems to head back towards 23.6% Fibonacci retracement level resistance near 1.1265-70 region. A decisive strength above 1.1265-70 resistance would negate any near-term bearish expectations and help the pair to move back above 1.1300 handle and aim to surpass recent high resistance near 1.1350 area, towards reclaiming 1.1400 round figure mark.
Conversely, sustained weakness below 100-day SMA support near 1.1180 is likely to drag the pair immediately to 50% Fibonacci retracement level support near 1.1155-50 region before dropping to test a strong confluence support near 1.1110-1.1100 round figure mark, comprising of 61.8% Fibonacci retracement level and the very important 200-day SMA.
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