The GBP/USD pair rose to a high of 1.5186 in Asia today after battling USD bulls for the entire European and NY session yesterday. The sharp drop in the EUR/GBP cross in the early NY session saw the cable rise to 1.5145 before falling back to 1.51. However, the USD was offered overnight, leading to a minor rally in the GBP/USD pair.
Drop in wage growth could kill sterling bulls
The cable suffered sharp losses last week after the Bank of England (BOE) surprised the markets with its dovish stance. The GDP and inflation forecasts were revised lower and Carney was reluctant to repeat his often repeated statement that rates could rise at the turn of the year. Consequently, Sterling remains in the firm grip of the bears despite the minor technical recovery.
The average earnings excl bonus is seen rising 2.7% in three months to September, compared to 2.8%. However, including bonus, the figure is seen rising 3.2% compared to the previous figure of 3.0%. A slower-than-expected wage growth figure could justify the BOE’s dovish stance and lead to a fresh sell-off in the GBP/USD pair. In case, the figure prints higher than expected, the doors will be opened for a re-test of 1.5248 (50% of Apr-Jun rally).
Technicals – Bears to make a comeback
Sterling’s corrective move from Friday’s low of 1.5025 followed by a failure to sustain above 5-DMA in Asia today accompanied by a bearish daily RSI and an hourly RSI (turning lower from overbought zone) indicates the pair could make its way back to 1.5087 levels (61.8% of Apr-Jun rally). On the other hand, a strong UK data could see the pair 1.5206 (38.2% of last week’s fall). An hourly close above the same would open doors for a re-test of 1.5248 (50% of Apr-Jun rally). Overall, the outlook stays bearish so long as the pair does not see a daily close above 1.5248.
EUR/USD Analysis – Bullish RSI divergence, but needs to break above 1.0758
The EUR/USD pair also witnessed a recovery to a high of 1.0774 on broad based USD weakness, but failed to see a close above 1.0758 (76.4% of Mar-Aug rally) on the 4-hour chart.
The 4-hr chart does show a bullish RSI divergence, but bulls would need a close on the 4-hour chart above 1.0758 in order to extend gains to 1.0844-1.0897 (Oct 28 low). On the other hand, a repeated failure to sustain/close above 1.0758 on the hourly chart would open doors for a re-test of 1.07-1.0670 levels.
The Eurozone data calendar is empty and with the US markets closed, there is very little scope for any news driven movement in the pair.
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