GBP/USD Forecast: Support at 1.4995, worsening UK current account is gaining market attention

The GBP/USD pair fell to the falling channel support of 1.4956 before trimming losses to end the day on a weak note at 1.5006 levels. A weaker-than-expected UK manufacturing report scared the investors out of the Sterling. Meanwhile, the buying the EUR/GBP cross amid the risk-off in the equity markets also weighed over Cable.

Talk of UK current account trouble gaining pace as expected

The British Chambers of Commerce also lowered growth forecast for the three years from 2015 to 201 and noted that growth was impacted by “persistently weak trade performance and current account balance. It added further that “premature interest-rate increases” are “unnecessary and too risky” as recovery is still fragile with global uncertainties and holds the opinion that BOE liftoff should be delayed beyond Q3 next year.

The UK current account to GDP ratio has hit record lows for three consecutive years and could post another record low this year. The markets have ignored the same for last three years, however, the trade side weakness is reaching an alarming level as discussed here (GBPUSD Forecast for 2016) and the issue could gain attention his year, which will be bearish for Sterling.

The data docket in the UK and US is empty today. Hence the pair is at the mercy of the overall market sentiment. Oil prices are trading higher and if they continue to do so in Europe, we could see the risk-sentiment stabilize, which could support recovery in the Cable. If oil surrenders gains and heads lower, the resulting risk-off would once again push EUR/GBP higher and hurt the GBP/USD pair.

Technicals – Rebound from 1.4996 could be bullish

• Sterling currently trades between two key fib levels – 1.5027 (50% of 1.5159-1.4895) and 1.4996 (61.8% of 1.5159-1.4895).

• The intraday bias is neutral and the doors for an rise to 1.5063 (38.2% of 1.5336-1.4895) would open if the Sterling finds support at 1.4996 levels.

• A break below 1.4996 could see the pair re-test the falling channel support (on daily chart) seen at 1.4957. · Sterling’s rebound from the channel support on Tuesday, if followed by a bounce from the support at 1.4996 is likely to see a rally to 1.5063.

• The overall bias stays bearish so long as 1.5159 remains as resistance.

EUR/USD Analysis: Eyes trend line resistance at 1.0994

The EUR/USD pair witnessed a bullish momentum on Monday as the stock markets turned risk averse following a weak China trade data and sharp drop in oil prices. The pair closed higher at 1.0891 on Tuesday and extended gains in Asia today to 1.0921 levels. At the time of writing, the pair was hovering around 1.0910 levels.

The Eurozone trade balance and current account number due for release is unlikely to be a market mover today. The economic calendar in the US is empty as well, hence, the performance of the equity markets is likely to influence the EUR/USD pair.

Technicals – Bullish break on hourly chart

• Euro’s close above 1.0891 (38.2% of 1.1495-1.0517) on Tuesday, followed by a dip below the same in Asia and a recovery to 1.0910 levels indicates the currency is likely to test the resistance at 1.0994 (trend line drawn from (March low – April low).

• The hourly chart also shows a bullish flag breakout. Though the breakout lacked strength, still the bias remains bullish on intraday basis.

• A rising channel could be seen as well. A break above 1.0925, would expose 50-DMA at 1.0955 and 1.0994 (trend line resistance).

• If the pair falls back below 1.0891 (38.2% of 1.1495-1.0517) would open doors for a drop to 1.0830 (5-DMA).