GBP/USD Forecast: Support of 38.2% Fib R at 1.5408

The GBP/USD pair tumbled almost 200 pips to hit an intraday low of 1.5413 on Tuesday as the markets turned risk averse due to the stock market rout in China and increased probability of Grexit. The spot began its downward journey after it was rejected at 1.5606 in the early European session. The better-than-expected Industrial production failed to provide any strength to the GBP bulls. The selling pressure intensified after the EUR/USD pair broke below the 1.10 handle.

With no major UK data due for release today, the cable remains at the mercy of the overall market sentiment. The rout in the Shanghai Composite index continues as sentiment worsened further after 50% of the companies suspended from trading. Meanwhile, Greece has a five-day deadline to submit a detailed package of reforms to international creditors in return for a bailout or risk the "bankruptcy" of both the country and its financial system. The risk aversion is likely to maintain its grip on the markets as we head towards the Fed minutes due for release in the American session. The September rate hike expectations in the US could drop if the Fed policy makers put more emphasis on the turmoil in the global markets, although it could result in a minor correction in the GBP/USD to 1.5520.

On the 4-hour chart, the spot breached the falling channel and extended losses to hit a low of 1.5413, before closing just above 1.5460 (61.8% Fib R of June rally). The pair could drop to 1.5408 (38.2% Fib R of Apr-June rally) in the early European session. However, the RSI on the hourly and 4-hour time frame has hit the oversold regions. Consequently, the pair may sustain above 1.5408-1.54, thereby opening doors for a re-test of 1.5460. A break above 1.5460 would be a double bottom breakout, which could see the pair target 1.5520. On the other hand, a a failure to sustain above 1.548-1.54 would open doors for 1.5348 (76.4% Fib of June rally).

EUR/USD: Another attempt at 1.0955 likely

The EUR/USD pair fell to an intraday low of 1.0917 on Tuesday on increased fears of Grexit and rout in the Chinese equity markets, before rebounding strongly to trade above 1.10 handle after Greece received a five day deadline to meet creditor nod. The recovery in the Dow Jones index also helped the EUR/USD pair sustain above 1.10 levels.

With no major data due out of the Eurozone, the Greek issue is likely to remain at the center stage ahead of the Fed minutes release. As per the Greek government official PM Tsipras will address the European parliament today. Meanwhile, European Council President Donald Tusk and Commission President Jean-Claude Juncker warned Tuesday that “Failure to find an agreement will lead to the bankruptcy of Greece and the insolvency of its banking system." Consequently, a hard stance from Greeks/PM Tispras is likely to put the EUR under pressure.

On the hourly charts, the spot is struggling to rise above the hourly 50-MA located at 1.1018. The recovery witnessed in the previous session was halted at the hourly 100-MA. Since then, the hourly 50-MA has acted as a strong resistance. Consequently, a failure to take out 1.1018 could push the pair back to 1.0994 (50% Fib of Apr-May rally). A break below the same could push the pair back to 1.0955. On the other hand, a break above 1.1018 could open doors for 1.1050 (hourly 100-MA). The outlook stays bearish so long as the pair trades below hourly 100-MA, which has acted as a strong resistance since June 30.