GBPUSD Downtrend Retracement (Mar 3, 2016)

GBPUSD has been trending lower on the longer-term time frames and the recent rally offers an opportunity to short on a pullback. A descending trend line can be drawn to connect the latest highs of price action and the Fib tool shows potential resistance levels. 

In particular, the 50% Fibonacci retracement level lines up with the descending trend line around 1.4275 and the dynamic inflection points at the moving averages. The 100 SMA just crossed below the longer-term 200 SMA, confirming that the downtrend is likely to carry on. Also, this lines up with an area of interest, right around the previous dip to 1.4200. 

Stochastic is already in the overbought area, hinting that buying pressure might fade soon and that sellers might take over. Similarly, RSI is indicating overbought conditions and is starting to turn lower, which means that bearish momentum is building up. A selloff could take GBPUSD back to the previous lows at 1.3850. 

Data from the UK has been weaker than expected this week, as the manufacturing and construction PMI readings both fell short. The former fell from 52.9 to 50.8 while the latter dropped from 55.0 to 54.2 instead of improving to the projected 55.5 figure. 

On the other hand, data from the US has been stronger than expected, with the ADP non-farm employment change figure hinting at a possible upside surprise in Friday’s NFP. Analysts are expecting to see a 195K increase in hiring for February, which might be enough to keep Fed rate hike expectations in play. 

For today, the UK services PMI could be a catalyst as this could show a drop from 55.6 to 55.1, reflecting a slower pace of industry growth. Weaker than expected data could allow the selloff to start early, with the 38.2% Fib at 1.4100 holding as resistance. 

By Kate Curtis from Trader’s Way