GBP/USD Forecast: Doors open for re-test of channel support

The GBP/USD pair fell sharply on Tuesday to a low of 1.5029 levels as the USD witnessed across the board strength ahead of the FOMC rate decision. The markets ignored the uptick in the UK core inflation and pushed the USD higher in line with the uptick in the treasury yields.

Eyes UK data ahead of Fed rate decision

The data in the UK is likely to show the jobless rate stayed unchanged at 5.3% in October. The growth in the average earnings including bonus is seen slowing to 2.5% from Sep’s 3.0%. Excluding bonus, the figure is seen at 2.3% from Sep’s 2.5%. A weaker data could push the GBP/USD pair lower to 1.5-1.4980 levels.

The major event today is the FOMC rate decision and its impact on the GBP/USD is discussed in detail here (Macro Scan ). The scenarios remain largely unchanged, however, a weak UK data may push GB/USD lower ahead of the FOMC event. Thus, anticipated levels in the scenario shall change as follows -

GBP/USD scenarios (if pair dips to 1.4980 on weak UK data)

1. A 25bps move accompanied by a very dovish interest rate “Dot Chart” could result in a drop to 1.4850-1.4830, followed by a sideways action around 1.50 ahead of the year end.

2. A rate hike, coupled with a hawkish “Dot chart” would open doors for a drop to 1.45. However, the probability of such a move is close to zero.

3. A less than 25bps with a dovish interest rate “Dot Chart”could see the pair quickly recover from the minor drop to 1.4940-1.49 and continue correction ahead of the year-end.

4. If the Fed does not hike rates, a rally to 1.53 and above is possible.

Technicals – Lower highs formation continues

• Sterling’s turn lower from the high of 1.5240 marked the continuation of the lower highs formation we have witnessed since August 2015. 

• This has increased the odds of the re-test of the falling channel support at 1.4940.

• On the higher side, the immediate gains are likely to be capped around 1.5087 (61.8% of Apr-Jun rally). A break higher would expose 1.5113 (23.6% of 1.5819-1.4895).

EUR/USD Analysis: Sell on rallies ahead of FOMC decision

The Euro dropped to a low of 1.0908 on Tuesday on the back of a broad based USD rally and an uptick in the European and US stock markets. The preliminary German PMI numbers due later today may not have much of an impact as investors remain focused on the FOMC rate decision. The detailed report of the FOMC rate decision and its impact on the EUR/USD and USD/JPY pair is published here ( FOMC Meeting Forecast ).

Technicals – Bearish daily close

• Euro’s failure to sustain above 200-DMA, 1.1006 (50% of 1.1495-1.0517) followed by a daily close below 1.0940 (61.8% of 1.0463-1.1714) has opened doors for a break below 1.0890 (38.2% of 1.1495-1.0517) and slide to 1.0837 (Dec 7 close).

• A minor uptick to the 5-DMA at 1.0973, but is likely to be met with fresh offers. A break higher would expose strong resistance at 1.10 (rising channel on the hourly chart). Meanwhile, a failure to take out the 5-DMA could trigger a break below 1.0890 levels.

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