GBP/USD Forecast: piercing pattern with longer wick ahead of US durable goods report

The GBP/USD pair turned lower from the high of 1.5819 on Tuesday as the stability in the risk sentiment partly due to China’s rate cut saw the USD recover part of its lost ground. The GBP/USD pair suffered a bearish closing, as it ended below 1.5690. A fresh buying is seen in the Asian session today, but gains are being capped around 1.5720.

US durable goods orders to affect Fed rate hike bets

The durable goods orders have been more or less lackluster throughout 2015, which indicates the economy is not responding to the rate hike talk. Given the record low interest rates for almost a decade and sustained labor market gains, the durable goods should have spiked in anticipation of a rate hike (prepone consumption in anticipation of policy normalization). Consequently, a contraction in the core durable orders could further push down September Fed rate hike probability (currently around 25%). However, a positive figure could renew the rate hike bets, especially since China’s rate cut appears to have stabilized markets. The GBP/USD, after having suffered a bearish daily close, could extend losses to 1.5639 (38.2% of June rally) in case of a positive durable goods orders print.

Technicals – Lower end of the rising channel put to test

Sterling’s drop from the high of 1.5819 and the bearish daily close below 1.5690 indicates a short-term top might be in place at 1.5819. The bearish piercing candle on the daily with a long wick closing below 1.5690 has opened doors for a drop to 1.5639 (38.2% of June rally). However, the lower end of the rising channel on the 4-hour chart is offering support to the pair since the NY session yesterday. A break below the same - 1.5690 – could open doors for a sell-off to 1.5639. The bears would be more happy to see a 4-hour close below the channel support at 1.5690.

EUR/USD Analysis: Bearish below May 2015 high

The EUR/USD fell to an intraday low of 1.1396 on Tuesday, reversing gains as trading returned to some normalcy after the PBOC stepped in to support the markets. The People’s Bank of China announced today a 25 bps cut in the one-year benchmark lending rate to 4.6%, a 25 bps cut in the one-year benchmark deposit rate and a 50 bps lowering of reserve requirements for most big banks. The move was largely aimed at stabilizing the markets.

EUR looks down as panic halts, but equities, metals still weak

The EUR, begin a funding currency, appears weak as China’s rate cut stabilized the equity markets. The European benchmarks ended with more than 35 gains, however, the Dow Jones erased early gains and fell back into losses. The Asian equities declined today as well, although, that appears more due to the volatility in their currencies and the resulting negative impact on the economy. The worrying factor is the metals hardly reacted positively to the China's rate cut, indicating that it won’t have a major impact on stimulating the demand. Consequently, the risk aversion may return and the EUR could turn higher, especially if it manages to sustain above 1.1467 (May 2015). Ahead in the day, the spot is at a risk of sell-off well below 1.1467 in case the durable goods orders print higher than expected.

Technicals – Fresh offers below 1.1467

Euro’s turn lower from the Asian session high of 1.1561, after a rebound from 1.1396 in the previous session has increased the odds of a break below 1.1467, in which case the spot could extend the losses to its hourly 100-DMA at 1.14. On the other hand, a minor dip below 1.1467 followed by a rebound above the same (on the hourly chart) could open doors for a fresh rally to 1.1561 levels. The outlook would once again turn bearish only after a bearish daily close below 1.1467.