The GBP/USD pair clocked an intraday high of 1.5628, but failed to close above 1.5606 (23.6% Fib R of Apr-June rally). The pair jumped from the support of 50% Fib R of June rally at 1.5550 and extended gains in the European session above 1.5568 (38.25 Fib R of July 2014-April 2015 plunge). Apart from the US dollar and the Japanese Yen, the markets also favoured the GBP after Greek’s rejected the creditor’s proposal on Sunday. Moreover, the UK economy is relatively less exposed to the Greek crisis. The contagion risks exist, but the UK bank’s have almost negligible capital exposure to Greece. Consequently, the GBP could be favoured in line with the traditional safe havens as and how the Greek drama continues to unfold.
The investors shall also keep an eye on the UK industrial production data due for release. Month-on-month the output is seen contracting by 0.2%, while year-on-year figures are likely to show an expansion by 1.6%. A mixed bag of data is unlikely to provide clear direction to the pair, however, a weaker-than-expected could lead to fresh selling pressure, especially after being rejected at the technical resistance at 1.5606 earlier today.
The 4-hour chart shows the spot is moving in a falling channel, with 1.5515 and 1.5650 being the channel support and resistance levels today. The spot is stuck between 1.5606 (23.6% Fib R of Apr-June rally) and 1.5582 (5-DMA). Given the bearish daily RSI, and the repeated failure to see a daily close above 1.5606, the pair could take out the support at 1.5582 (5-DMA) and drop to 1.5568-1.5570 (50-DMA). Only a break below 1.5568 could see the pair fall to 1.5515. On the other hand, a break above 1.5606 could see the pair rise to 1.5638-1.5650. However, it would take a better-than-expected UK industrial production report – both year-on-year and month-on-month and upbeat manufacturing production figures for the pair to rise to 1.5650 levels.
EUR/USD Analysis: Focus on EU leaders special summit
The EUR/USD pair gapped lower on Monday, but recovered lost ground to print a high of 1.1095 mainly due to expectations that a deal may be reached at the EU leaders special summit scheduled later today. However, the pair was once again offered in the NY session leading to a daily close at 1.1047. Meanwhile, the ECB maintained the ELA on Monday, but adjusted the haircut on collaterals, which could hurt some banks.
No major breakthrough deal is likely at today’s special summit. Even if we have some positive news flow coming through from the summit, it would be interesting to see if the resulting risk-on favours the EUR or the USD. We have seen the US dollar rally even during the risk-on rallies as a solution to Greece issue brings Fed more closer to rate hike in 2015. On the other hand, risk-off certainly strengthens USD via increased demand for the safe haven treasuries.
The pair currently trades at 1.1034. The immediate support is seen at 1.1017 (100-DMA) and 1.0994 (50% Fib R of Apr-May rally). A break below the same could push the pair down to 1.0955. A break below 1.0955 would mean the downtrend from the June top has resumed, with next major support seen at 1.0743 (76.4% Fib R of Apr-May rally). On the higher side, a break above 1.1046 (5-DMA) could open doors for a re-test of 1.1083 (38.2% Fib R of Mar to May rally).
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