GBP/USD Forecast: Bears to make a comeback?

The GBP/USD pair quickly fell to its hourly 100-MA at 1.5134 after the release of a weak wage growth figure, before moving back to 1.5165 and extending gains to a high of 1.5247 in the Asian session today on the back of a drop in the UK unemployment rate a fresh multi-year lows. Broad based USD selling in the NY session also helped the pair rally.

Yellen speech eyed

The UK data calendar is empty, hence the main event for the day is Yellen speech. The Fed’s Yellen is more likely to talk up December rate hike bets and that could trigger a fresh fall in the GBP/USD pair, given that the RSI has hit the overbought zone on the intraday charts. A major surprise would be Yellen playing down December rate hike bets, but the probability of a U-turn is very low. Meanwhile, the weekly jobless claims figure may not have much impact on the pair.

Technicals - Bearish RSI divergence on the hourly chart

The odds of a bearish move today are high since the hourly chart shows a bearish RSI divergence, which is accompanied by a failure in Asia to take out 1.5248 (50% of Apr-Jun rally). The daily RSI below 50.00 stays bearish. Another failure to take out 1.5248-1.5254 (hourly 200-MA), could result in a drop below 1.5206 (38.2% of last week’s drop) and a slide to hourly 50-MA around 1.5160. On the other hand, a break above 1.5254 (hourly 200-MA) would open doors for a rally to 1.53. Overall, outlook stays bearish so long as the pair does not see a daily close above 1.5248.

EUR/USD Analysis: re-test of 1.07 likely

The EUR/USD pair once again found bids closer to 1.07 levels, but the gains were capped around 1.0780 levels. No major data was released on either side of the Atlantic and the trading was erratic. The pair currently trades around 1.0750 levels.

Focus on Draghi’s Testimony

The ECB President Draghi’s testimony to lawmakers in the EU parliament will be watched out by markets for any clues regarding the next easing move in December. Draghi’s speech in London turned out to be a non-event yesterday. If Draghi’s comments later today show the central banker favours a deposit rate cut over QE as a next move, the bond yields across the Eurozone would take a hit and push the EUR/USD down. The shared currency is also at a risk of hawkish comments from Fed’s Yellen and other policy makers.

Meanwhile, the German final CPI reading could turn out to be non-event so long as the number is not revised lower, in which case the EUR would take a hit. The Eurozone Industrial production figure, if strong, could push up equities and weigh over the EUR and vice versa.

Technicals – Inverted head and shoulder failed

The hourly chart shows the pair witnessed a break above the inverted head and shoulder neckline in the early Asian session, but fell back below the same. This also marked a failure to sustain above 5-DMA at 1.0765 levels. A failure to rise above the neckline at 1.0764 in early Europe is likely to send the pair back to 1.07-1.0680 levels. The odds of a further dip towards 1.06 are high as a failure of the inverted head and shoulder usually leads to a sharp sell-off. On the other hand, an hourly close above 1.0780 would open doors for a rally to 1.0840 levels.