The GBP/USD pair rose to a high of 1.5124 in early Europe, followed by a drop to a low of 1.5050 on the back of a weaker-than-expected UK manufacturing PMI report. The pair recovered in the NY session to close at 1.5080 after the US ISM data showed the manufacturing activity contracted the most since 2009. Sterling met with offers at 1.5080 in Asia today and now trades around 1.5065.
Yellen could talk up US dollar
Fed chairwoman Yellen is scheduled to speak today and will be testifying before the Congressional Joint Economic Committee tomorrow. The Fed head is more likely to point out again that December Fed meeting is a “live event”. Despite the weak data in October, Yellen kept rate hike bets alive.
Moreover, the central bank’s decision to hike rates is more connected to labour market strength that any other factors; and the labour market continues to improve. The US ISM manufacturing PMI released yesterday was the weakest since 2009, but carrier a bright spot – the employment index ticked higher. The ADP employment report for November due later today could serve as an additional evidence of the labor market tightening. With December Fed just two weeks away and increasing signs of labour market strength, Yellen is likely to talk up the US dollar.
Sterling traders could adjust their positions ahead of the Yellen speech depending on the actual construction PMI print (previous 58.8, expected 58.2). Anything below estimates could weaken Sterling. On the other hand, a better-than-expected figure would open doors for a re-test of the previous session’s high of 1.5125.
Technicals – Inverted head and shoulder on hourly chart
A rebound from 1.5050 in the NY session on Tuesday has increased odds of a inverted head and shoulder formation on the hourly chart with the neckline resistance at 1.5123.A rebound from 1.5050 in the NY session on Tuesday has increased odds of a inverted head and shoulder formation on the hourly chart with the neckline resistance at 1.5123.
A break above 1.5123 would open doors for a inverted head and shoulder target of 1.5253 (which is just above the major Fib hurdle of 1.5248 – 50% of Apr-Jun rally).
On the other hand, a failure to sustain above 1.5062 (hourly 50-MA) would open doors for a re-test of 1.50 handle. Meanwhile, a failure to take out the inverted head and shoulder neckline at 1.5123 could trigger a fresh sell-off that may take the pair well below 1.50 handle.
EUR/USD Analysis: A rebound from 1.06 levels could be bullish
The EUR/USD pair finally witnessed respite on Tuesday after the weak US ISM manufacturing figure triggered a liquidation of the US dollar. The pair clocked a high of 1.0637 in the NY session before falling to 1.0610 levels in Asia today. The USD index fell below 100.00 levels on softer treasury yields following the weak ISM data. However, the employment sub index ticked higher and that has restricted losses kept the USD index closer to three figures.
Focus on EZ Core CPI and Fed’s Yellen
The preliminary Eurozone core CPI in November is seen at 1.0%, compared to Oct’s 1.1%. A weaker-than-expected core CPI ahead of Thursday’s ECB meeting could be enough to send the EUR below the support zone of 1.055-1.0580 levels. Meanwhile, Yellen and Co. is likely to reiterate that the December Fed is a live event and the labor market is strong enough to move rates. The ADP report due ahead of Yellen is expected to show stronger job growth.
Technicals – Inverted head & shoulder in falling channel
Euro’s rebound from 1.06 levels today would result in an inverted head and shoulder formation in a falling channel. Interestingly, the neckline resistance coincides with the falling channel resistance at 1.0636 levels.
A rebound from 1.06 is more likely to result in a break above 1.0636, thereby opening doors for 1.0689 (Nov 25 high) – 1.07 levels.
On the other hand, a break below 1.06 could see the pair re-test Monday’s low at 1.0558.
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