GBP/USD Analysis: Fresh signs of weakness seen, could drop to 1.4765
The GBP/USD pair inched higher to 1.4878 earlier today, before erasing gains to trade at 1.4833 levels. The British Pound gained in the previous session amid the absence of fresh economic data out of the UK. The three day gains seen in the sterling were largely driven by the disappointing US data and bearish growth forecasts published by the IMF. However, the gains are likely to be capped on Thursday, on account of the election uncertainty. The UK elections are only three weeks away and the polls suggest a high possibility of a hung parliament. Sterling 3 month option volatiles are at a 3-year high, but could rise even further as we near the general elections.
On the daily charts, we see the pair has eased from the high of 1.4878 to trade at 1.4836. The sell-off could extend till 1.4796 (23.6% Fib retracement of 1.5550-1.4564). Given the bearish RSI on the daily charts, the pair could break below 1.4796 to test 10-DMA located at 1.4765 levels. Moreover, the bullish RSI divergence seen on the daily charts on Tuesday appears to have played out. Thus, a fresh weakness is likely to be seen today. In case the pair manages to sustain above 1.4796, the pair could re-test the daily high of 1.4878.
EUR/USD Forecast: Two-day rally about to end, Eyes 1.0635
The pair hit an intraday high of 1.0745, before erasing gains to trade at 1.0680 levels. The European Central Bank on Wednesday left monetary policy unchanged and at the conference that followed, Mario Draghi expressed his satisfaction with the smooth implementation of QE and its effectiveness. Any speculation regarding scaling back size of purchases or the shortage of bonds was put to rest when Draghi termed these concerns as slightly over exaggerated. The taper talks were also labeled as too early. Meanwhile, the EUR failed to weaken in the North American session despite S&P downgrading Greece on Wednesday to CCC+/C with a negative outlook. Given the absence of major market moving data during the European session today, the pair is likely to move in line with the overall market sentiment. At the moment, it appears that the USD is making a comeback against major currencies.
On the charts, we see the pair has given up its early gains to trade at 1.0680 levels. The pair is also back below its 10-DMA located at 1.0697, thereby opening doors for a further sell-off towards its 5-DMA located at 1.0635 levels. Moreover, the pair has failed to sustain gains above the double top neckline level of 1.0711 levels. The daily RSI too is pointing to a further sell-off. Thus, a fall to 5-DMA located at 1.0635. A further sell-off to 1.06 could be seen in the case of a break below 1.0635. On the other hand, a rise above 1.0711 could see fresh demand for the Euros.
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