GBPUSD made a strong bounce after PM May’s Brexit speech in the latest London trading session, allowing price to recover off the 1.2000 lows and create a reversal formation. A double bottom can be seen on the 4-hour chart with the neckline at 1.2700.
Price still has a long way to go before clearing the neckline and confirming the potential uptrend but if it is able to do so, the pair could head north by as much as 700 pips or the same height as the chart pattern. If the resistance holds, the pair could make another attempt at breaking below the 1.2000 mark.
The 100 SMA is below the 200 SMA so the path of least resistance is to the downside. In addition, the gap between the moving averages is widening, which means that bearish pressure is getting stronger. Stochastic is indicating overbought conditions, which also support the idea of further losses for GBPUSD.
In her speech, UK Prime Minister May confirmed the possibility of a “hard Brexit” in which they could give up access to the single market in exchange for immigration controls and autonomy from the European Court of Justice. She did try to reassure market watchers that the government would pursue trade deals with other nations and stay in good terms with the EU. May also noted that Parliament will be allowed to vote on the Brexit deal before anything is made official.
As for the US, mixed Fed rhetoric and uncertainty ahead of Trump’s inauguration dampened the dollar’s gains. According to FOMC member Dudley, the Fed is in no rush to tighten since the economy isn’t growing at a much faster pace than its sustainable long-term growth. He added that inflation isn’t a problem and that dollar appreciation would keep a lid on price levels. The Empire State manufacturing index posted a sharper than expected drop from 9.0 to 6.5.
UK CPI readings came in better than expected and jobs figures are up for release today. Another stronger than expected read could allow the pound to extend its climb while weak results could force it to turn back down. FOMC member Kashkari has a speech lined up today, along with Fed head Yellen.
By Kate Curtis from Trader’s Way