The GBP/USD pair rose to 1.5436 before dropping to a low of 1.5340 on Monday. The spot was repeatedly offered above 1.5424 (Aug 7 low) and eventually extended losses to suffer a bearish daily close below its 200-DMA located at 1.5364. However, the oversold conditions on the intraday charts and the weakness in the Asian equities led to a recovery in the pair today. The spot recovered to 1.54 levels in the Asian session today.
Focus on UK PMI
The UK final manufacturing PMI is seen rising slightly to 52.00 from 51.9. The EUR/GBP exchange rate shot higher in August, although the move caught everyone by surprise and was largely due to the unwinding of carry trades due to concerns of a slowdown in China and the global economy. Consequently, the fall in the GBP against EUR may not have resulted in a jump in new export orders. Still, a better-than-expected figure could trigger a further technical recovery in the pair. Meanwhile, a slight upward revision of the Chinese manufacturing PMI may stabilize European equities and strengthen the USD. However, risk aversion in Europe coupled with a better-than-expected UK PMI figure could push the spot 1.5450 (23.6% of last week’s drop).
Technicals – strong resistance at 1.5440
The spot bounced back from the previous session’s low of 1.5340, thereby indicating a possible double bottom formation with neckline 1.5440. However, a failure of the upside breakout from the multi week range seen last week, followed by a daily close below 200-DMA on Monday is likely to lead to a failure of the double bottom. Consequently, fresh offers could hit the pair anywhere in the range of 1.5410-1.5440. A re-test of 1.5330-1.5340 appears likely in case the spot stalls in the range of 1.5410-1.5440. On the higher side, only a daily close above 1.5450 (23.6% of last week’s drop) could open doors for 1.55-1.5520 levels.
EUR/USD Analysis: Gains capped at 1.13?
The EUR/USD pair ended with moderate gains on Monday at 1.1209 as expectations for an upcoming US rate hike continued to support the USD. The gains have been extended today in the Asian session to near 1.13 levels due to the risk aversion in the Asian equity markets.
Positive EZ data could hurt the EUR
The risk aversion in the Asian equities has dragged European and US futures lower. The Euro Stoxx 50 futures are down more than 1.5%, which is supporting the EUR – a funding currency. However, the EUR/USD is at a risk of a sudden fall back to 1.12 levels in case the German unemployment figures and more importantly, the PMI readings across Eurozone highlight strength in the economic activity. The European equity markets are likely to pare losses on positive EZ economic data and push the EUR/USD lower. A similar reaction is expected in case of a better-than-expected US ISM manufacturing figure.
Technicals – Strong resistance of 200-DMA at 1.13
Euro’s recovery from the Friday’s low of 1.1155 to near 1.13 today appears largely due to oversold conditions on the charts and may run into offers at the 200-DMA at 1.13. Failure to take out resistance at 1.1296 (23.6% of Apr 14-Mar 15 plunge) -1.13 (200-DMA) could lead to a renewed sell-off to 1.12 levels. Only a break below 1.1155 (Friday’s low) would mean the fall from last Monday’s high of 1.1714 has resumed. On the higher side, only a daily close above 1.1467 (May high) would open doors for a re-test of 1.1714.
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