Matt Weller, CFA, CMT
Faraday Research
It’s been a quiet start to the trading week, with most major assets consolidating in tight ranges after last week’s volatility. The biggest development thus far was a report that Japan’s Government Pension Investment Fund (GPIF) is considering doubling its exposure to stocks at the conclusion of its asset review later this year. While the decision is not finalized yet, the fund manages over $1T in assets, so any potential changes will have a major impact on Japanese stocks and bonds; not surprisingly, the Nikkei index is surging on this news.
Shifting our attention to the forex market, we’re seeing a tick of weakness in the US dollar, though it feels as if traders are still trying to digest last week’s volatile moves. One of the most interesting currency pairs right now is GBPUSD, which is peeking above a key resistance level at the start of today’s US trading session.
Technical View: GBPUSD
Cable closed last week just below the convergence of a 3-month bearish trend line and the 38.2% Fibonacci retracement of the Sept-Oct drop at 1.6120, and the pair has traded above that level to as high as 1.6140 today. Meanwhile, the secondary indicators are sending out cautiously bullish signals as well, with the MACD inching higher above its signal line (though still well below the “0” level), and the RSI at its highest level in three months.
For this week, conservative traders may want to wait for a daily close above 1.6120 before confirming the rally, but a confirmed breakout would suggest that GBPUSD is more likely to rally in the coming days. To the topside, the next levels of resistance are the 50% and 61.8% Fibonacci retracements at 1.6200 and 1.6275 respectively. Meanwhile, a reversal and close back below the 1.6120 level today would keep the longer-term bearish bias intact.
Key Economic Data/News That May Impact GBPUSD This Week (all times GMT):
Ø Today: Speech by FOMC Member Powell (14:00)
Ø Tuesday: UK Public Sector Net Borrowing (8:30), US Existing Home Sales (14:00)
Ø Wednesday: BOE Minutes (8:30), US Core CPI (12:30)
Ø Thursday: UK Retail Sales and BBA Mortgage Approvals (8:30), US Initial Unemployment Claims (12:30), US Flash Markit Manufacturing PMI (13:45)
Ø Friday: UK Preliminary GDP (8:30), US New Home Sales (14:00)
This research is for informational purposes and should not be construed as personal advice. Trading any financial market involves risk. Trading on leverage involves risk of losses greater than deposits.
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