Both the GBP/USD and the EUR/USD pair consolidated Thursday's sharp reversal and traded in a narrow trading band during Asian session on Friday. Yesterday's slump followed ECB's surprise decision to taper its bond purchase program to €60 billion per month beginning April 2017, from its current pace of €80 billion per month. Markets initially seemed disappointed by the decision and lifted the shared currency higher across the board. The gains, however, turned short-lived as further details showed that the central bank extended the program until December 2017 and was ready to increase the pace or extend the program further, if the economic condition deteriorates.
The shared currency reversed all of its early gains to 3-week high level beyond 1.0800 handle and tumbled to 1.0600 region, boosting the overall US Dollar Index. The spillover effect weighed on the GBP/USD pair as well and the pair turned sharply lower, reversing over 150-pips from session peak level near 1.2700 region to end the day in negative territory for the third consecutive session. Nevertheless, both the majors are now headed for their first weekly declines in the past three.
As post-ECB weakness continues, traders on the last trading day would now look forward to UK goods trade balance, and Prelim UoM Consumer Sentiment from the US, for short-term trading opportunities.
Technical outlook
GBP/USD
Despite of yesterday’s sharp slide, the pair has managed to defend 1.2550 intermediate support (nearing 38.2% Fibonacci retracement level of 1.3439-1.1980 recent slide). Hence, it would be prudent to wait for a decisive break below this immediate support in order to confirm further downslide in the near-term. A decisive weakness below 1.2550 level, leading to a break below 1.2535 area, is likely to drag the pair below 1.2500 psychological mark support, towards testing an important confluence support near 1.2430 region, comprising of 50-day SMA and a short-term ascending trend-channel support.
Alternatively, a sustained recovery back above 1.2620 immediate resistance now seems to assist the pair back towards 1.2675-80 resistance area en-route 1.2700 strong resistance, representing 50% Fibonacci retracement level. A follow through buying interest has the potential to continue boosting the pair further towards its next major hurdle near 100-day SMA, currently near 1.2775 region.
EUR/USD
The pair on Thursday reversed from its previous strong support, now turned resistance near 1.0850 region, also nearing 50-day SMA resistance. Hence, a follow through selling pressure now seems to drag the pair back towards 1.0550-40 strong horizontal support, which if broken decisively would turn the it vulnerable to extend its downslide, even below recent lows and 1.0500 psychological mark, towards March 2015 lows support near 1.0460-50 region.
Meanwhile on the upside, any recovery attempts might now confront immediate resistance near 1.0650 region above which a fresh bout of short-covering could lift the pair back towards 1.0700 handle. Momentum above 1.0700 handle might now be capped at 1.0760-65 strong horizontal resistance above which the pair is likely to make a fresh attempt to head back towards 1.0850 strong resistance area, with 1.0800 round figure mark acting as intermediate resistance.
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