Related: GBP Weekly Outlook Based on Fundamental Themes; 3 Keys for Oct 10th-14th (10/10)
The Tuesday US session saw a general risk-on market, where equities and oil rallied bringing along with them, commodity currencies (AUD, CAD, NZD) and even the EUR, while pressuring the USD and JPY. However, during this risk-on session, GBP was left behind. As we go through the Wednesday Asian session and gear up for the European session, let’s take a look at some Sterling-crosses, as we might be developing signs of further GBP-weakness ahead.
The 1H GBP/USD chart shows a market that was bearish after testing a resistance zone near 1.57. (refer to 4H chart to see resistance more clearly). The risk-on US session did not push the GBP/USD up and instead, the very short-term trend extended lower. The RSI is breaking below 40 now, and a tag of 30 would be a sign of bearish momentum. The 200 period moving average which is flat in the 1H chart (a sign of a range-bound market), is near 1.5520. The 4H chart shows that the 1.55-1.5540 zone reflects the central pivot of the range between 1.57 and 1.53.
If the GBP/USD breaks below 1.55, and then a pullback remains below 1.5540 (maybe even 1.5550), the bearish outlook remains in the short-term, targeting 1.53 in the context of a medium-term range-bound market. It should be noted that the 1.53-1.5350 level is an important support zone that was not only seen on Sept 22 and Oct 4 and 6 of 2011, but also Sept 1-13 and Dec 22 and 28 of 2010.
Therefore a strong break below 1.53 will be a significant bearish signal for further medium term bearish intent. At that point, we can expect a slide toward 1.50 in the short-term and further to 1.4750-1.4780 in the medium term, with a more aggressive medium term target toward 1.4230. The 2008 low, was established near 1.3630. The prospect of these bearish targets become more likely if 1.53 level is tested and respected as resistance.
The GBP/JPY is in a similar predicament as the GBP/USd in the medium term, stuck in a range-bound market. The resistance this week is 120.20, but resistance a couple of week’s ago reside at 120.60, we can think of the 120.20 – 120.60 area as a resistance zone. The central pivot is in the 118.80-119 range. Below this range, we open up a short-term bearish outlook toward the all-time low at 116.83.
The GBP/CHF and EUR/GBP pairs have not changed much in their outlook since the latest updates this week.
GBP/CAD has seen a double top, and recent price action is respecting the topping pattern. However, the 4H chart shows that it has not established any bearish momentum above the very short-term time-frame – the 4H RSI did not tag 30. As the market finds support above 1.60 (disregarding the tails), we are so far in a flat correction. However, if the market can push below 50% retracement at 1.59, we are likely at least looking toward 1.5785, 61.8% retracement in the short-term, with prospect below that toward 1.5413 low, or conservatively toward the 1.5550 pivot. This short-term to medium term bearish outlook, is within the context of a longer-term ranging market that extends back to the Q1 of 2010.
The GBP/AUD established bearish momentum in the medium term. It is however respecting a rising support going back to September 8, 2011, and also trading above a rather flat 200-period simple moving average (the flatness suggests a sideways market). While the market stays below the 1.5765 pivot, GBP/AUD looks poised to test the 1.5460 pivot or at least the 61.8% retracement at 1.55. Below 1.5450, we open up the 78.6% retracement at 1.5275. A full retracement has 1.4980 Sept 2010 low in sight. These lower targets gain likelihood if the market shows respect to the 1.55 level (200SMA) as resistance, reflecting GBP bears to be in charge.
If however, there is a break above 1.5765, which seems like as I wrap up this update, it means commodity currencies are taking even more heat. This however, does not mean the sterling is strong, this just means we will only see its weakness in the GBP/USD and GBP/JPY in a risk-off environment. But we will see GBP weak against commodity currencies more during risk-on trading.
Fan Yang CMT is the Chief Technical Strategist FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.