GBP/USD Forecast: Nears falling trend line resistance

The GBP/USD pair rebounded from the 5-DMA support to end the day higher at 1.4262 levels. Dollar selling resumed in the NY session, pushing the pair as high as 1.4284 levels. The bullish move came as UK government put its foot down hard on Anti-EU supporters. British Chambers of Commerce director-general, John Longworth resigned after being suspended for saying that the UK economy could be better off outside.

Furthermore, Bank of England announced 3 long-term repo operations between June 14 and June 28. This will be done to ensure the liquidity in the system stays at a healthy level as situation could take a ugly turn if Britons vote in favor of Brexit on June 23rd.

Bulls need to be cautious

The data calendar in the UK and US is light; hence there is less scope for a sharp reversal in Cable. However, traders should note the UK data released over the last week was weak. Plus, Fed policymakers – Brainard and Fischer – were cautiously hawkish yesterday. Both were confident about Fed reaching its price target and also cheered the resilient labor market. Their cautious but hawkish stance could come into play and help USD recover losses, especially if Bank of England’s Mark Carney could show a greater willingness to further delay its normalization cycle during his speech on the UK’s EU-membership.

Technicals – Resistance at 1.4295

• Sterling’s bearish price-RSI divergence on 4-hour chart coupled with a failure to take out 1.4295 (falling trend line resistance) would open doors for a slide to 1.4196 (5-DMA), which if taken out could send the spot lower to 1.4165 (23.6% of 1.5230-1.3835).

• A daily close below the same would signal the end of the corrective rally from the low of 1.3835 and prices may head back to 1.4032-1.40 levels.

• On the higher side, resistance at 1.4295 if penetrated shall open doors for 1.4330 (23.6% of 1.5930-1.3835). In the wake of weak UK data and Brexit referendum, the resistance at 1.4330 could hold.

EUR/USD Analysis: love affair with rising trend line continues

Euro refuses to drop as speculation of a limited ECB action is keeping bears cautious. The EUR/USD pair recovered from the European session low of 1.0940 (61.8% of Mar – Aug rally) to print a high of 1.1026 in the NY session before settling at 1.1013 levels.

A 10 basis point ECB rate cut is already priced-in, but there are more things the bank can do. The ECB could increase the amount of assets purchased per month, extend the end date of bond buying. However, as of now markets do not see ECB tweaking any other tool except the deposit rate. But this could end up working in ECB’s favor. Given the expectations are low and the Euro is on a front foot heading into the ECB event, even a minor tweak in the QE program along with a deposit rate cut could lead to a sharp fall in the EUR/USD pair.

As for today, the currency pair is at the mercy of overall demand for the US dollars. The divergence between oil (rally) and stocks (weak) supports EUR, however, weakness in stocks despite oil rally could be a sign of bull trap in oil. Consequently, EUR may head lower if oil starts erasing gains or stocks head higher.

Technicals – Eyes 50-DMA support

• Euro’s failure to see gains above rising trend line in Asia despite sharp recovery from key support of 1.0940 in the previous session has left the doors open for a re-test of 50-DMA support at 1.0977, which if breached, could see the spot re-test 1.0940 levels.

• On the higher side, only a break above 200-DMA at 1.1045 – 1.1048 (38.2% of 1.0517-1.1376) would shift risk in favor of a rally to 1.1087 (Sep 3 low).