The GBP/USD revisited 1.5360 area on Wednesday after Fed’s Yellen said rates could rise in December and the economy does not see a need for negative rates. The USD also gained momentum from the sharp rise in the US ISM non-manufacturing PMI in October. The employment index under the ISM figure was also the second highest in almost a decade. The ISM services data overshadowed a not so impressive ADP figure and thus managed to push the USD broadly higher. The cable clocked to a high of 1.5445 in the European session after the UK services PMI printed higher than estimates.
Focus on BOE events
The BOE rate decision, minutes and the quarterly inflation report (QIR) is due for release today.
A 7-2 vote count would be a hawkish development that could push the cable higher to 1.5470 (100-DMA) and 1.55 levels. A daily closing above 1.55 would need 7-2 vote count plus a slightly higher revision of GDP forecasts or unchanged/higher revision of inflation forecasts.
On the other hand a neutral stance - an 8-1 vote count and a largely unchanged stance of the BOE would leave Sterling at the mercy of Us non-farm payrolls due tomorrow.
An ultra dovish development - 8-1 vote count/8-0 vote count with a downward revision of GDP and inflation forecast, coupled with negative commentary on Sterling rate could push the cable to 1.5277 (support of the rising trend line Oct1 low-Oct 29 low).
Technicals – Strong support at 1.5350
The charts could change quickly after a major event like the one due today. Hence, it is advisable to jot down just key support and resistance levels, that may be breached/tested depending on the outcome –hawkish/dovish.
Support is seen at - 1.5350 (50% of Jan 2009 low-July 2014 high), 1.5277 (support of the rising trend line Oct1 low-Oct 29 low), 1.5248 (50% of Apr-Jun rally). A break below 1.5248 would expose 1.5163 (Sep 4 low).
Resistance is seen at - 1.5433 (resistance of the falling trend line Aug 25 high-Oct 22 high), 1.5470 (100-DMA), and 1.55 levels. A break above 1.55 would expose 1.5568 (38.2% of July 2014-Apr 2015 plunge), which will be followed by a resistance at 1.5608 (23.6% of Apr-Jun rally).
EUR/USD Analysis: Bears in control
The EUR/USD pair fell to a low of 1.0844 on the back of a strong US ISM non-manufacturing figure and 'hawkish' comments from Fed's chair Yellen also helped to boost the demand for the US dollar. Both things further highlighted the growing divergence between the Fed and the ECB, which weighed heavily over the EUR making it one of the worst performing major currency yesterday.
The Eurozone retail sales due for release could be easily overshadowed by the BOE events today. Even Draghi’s speech in Milan may receive lukewarm attention until and unless the President’s comments are more dovish or slightly hawkish (marking a U-turn from last month’s December easing hint). During the European session, the EUR/USD pair could take its cues from the action in the EUR/GBP cross.
Technicals – Support at 1.0808
Euro’s failure to take out the trend line (Aug 24 high-Sep 18 high) resistance followed by a sharp drop to 1.0844 levels indicated the bears remain in control and the doors are open for a drop to 1.0808 (July 20 low). However, the oversold RSI on the Intraday charts and with the daily RSI around oversold levels, the pair could witness a technical correction to 1.0897 (last week’s low). A break above the same could lead to a re-test off 1.0940 (61.8% of Mar-Aug rally).
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