Having tanked closer to October flash-crash lows (below 1.20 psychological mark) at the start of the week, the GBP/USD pair has recovered to 1.2100 neighborhood as investors brace for the much awaited UK Prime Minister Theresa May’s upcoming Brexit speech. Media reports suggest that Ms. May is expected to outline a 'hard Brexit' approach and prioritize immigration control over access to the lucrative European Union's single market.
Meanwhile, uncertainty surrounding the incoming Trump administration's fiscal policies remains a key drag on the greenback, forcing investors to sit on the sidelines ahead of Donald Trump’s inauguration as the US President on Jan. 20.
After last week's quiet economic docket, investors this week will confront some important macro releases that pose significant event risk for the FX market. Apart from UK PM May’s Brexit speech, inflation data from UK and German ZEW economic sentiment index might infuse some volatility during European trading session. The UK CPI print for the final month of 2016 is expected to tick-higher to 0.3% m-o-m, taking the yearly reading to 1.4% as compared to 1.2% recorded in November. Meanwhile, German ZEW economic sentiment index is expected to rise from previous month's 13.8 to 18.3 in January, marking its highest level since June 2016. From the US, the release of Empire state manufacturing index and Fedspeaks would be looked upon for some impetus later during NA session.
Technical outlook
GBP/USD
The pair has now cleared its immediate barrier near 1.2080 level, marking 38.2% Fibonacci retracement level of 1.2233-1.1987 downslide from Friday’s peak to Monday’s bearish gap opening lows. Hence, a follow through buying interest above 1.2100 handle is likely to boost the pair towards 61.8% Fibonacci retracement level resistance near 1.2135 area. On a sustained move 1.2135 resistance, the pair seems all set to aim towards reclaiming 1.2200 handle and head towards testing its next major resistance near 1.2220-30 region.
On the flip side, retracement back below 1.2075-70 immediate support seems to drag the pair back towards 23.6% Fibonacci retracement level support near 1.2045 level. Weakness below 1.2045 support now seems to find support near 1.2015-10 region. However, a decisive break below 1.20 psychological mark would confirm near-term bearish bias and drag the pair towards sub-1.1800 support area, marking 61.8% Fibonacci expansion level of 1.3445-1.1980 downslide and subsequent retracement.
EUR/USD
The pair now seems to have conquered 50-day SMA hurdle and hence, seems more likely to extend its recovery trend further towards reclaiming 1.0700 handle, coinciding with 38.2% Fibonacci retracement level of 1.1300-1.0341 downfall. A follow through buying interest has the potential to lift the pair towards 1.0760-65 horizontal resistance, en-route 50% Fibonacci retracement level resistance near 1.0800-1.0810 region.
On the downside, weakness back below 50-day SMA support near 1.0615-10 area now seems to find strong support at 23.6% Fibonacci retracement level near 1.0565 region. Only a decisive break below this support might negate possibilities of any further up-move and turn the pair vulnerable to head back towards 1.0500 psychological mark before eventually dropping to its next major support near mid-1.0400s.
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