GBP/USD breached falling channel seen on the daily chart in the NY session yesterday and tested supply around the inverse head and shoulder neckline hurdle. Prices clocked a high of 1.4419 before bullish move ran out of steam. The bird is losing height in early Europe today; now trading around 1.4350 levels.
Points to be noted heading into data release
GBP bulls have been buoyed by latest Brexit polls showing ‘remain’ vote gaining an edge over ‘exit’ vote. UK TNS EU poll released today showed 38% in favor of ‘remain’, 34% in favor of ‘leave’. 28% still stand undecided.
However, oil prices are losing ground today and that is hurting risk sentiment, courtesy of which Cable dropped to 1.4350 levels.
UK data due today is likely to show –
Jobless Claims dropped for Fifth Consecutive Month in March
Average weekly earnings including bonus to rise 2.3% 3M/y/y in Feb from Mar’s 2.1%
Average weekly earnings excluding bonus to rise 2.1% 3M/y/y in Feb from Mar’s 2.2%
An uptick in the average weekly earnings including bonus may have been priced-in during Tuesday’s uptrend. Hence, it would take a better-than-expected earnings figure for markets to consider buying Sterling amid oil price drop. Moreover, a strong wage growth and labor market figure against backdrop of Brexit polls showing “remain” vote in lead means a less reason for BOE to telegraph a delay in the rate hike. This could help Cable cut through offers around inverse head and shoulder neckline level of 1.4402.
On the other hand, a weaker-than-expected wage growth and labor market data could add credence to the technical failure at neckline level of 1.4402 seen in Asia today and may open doors for a drop to 1.43-1.4250 levels.
Daily Chart
Pattern – Inverse Head and Shoulder
Resistance – 1.4368, 1.4402-1.4418, 1.4436-1.4459
Support – 1.4354, 1.43, 1.4255-1.4252
GBP’s rebound from 1.4354 (23.6% of 1.3835-1.4514) could result in another re-test of inverse head and shoulder neckline level of 1.4402.
When viewed against the backdrop of bullish break from falling channel seen yesterday coupled with bullish move in RSI, the pair appears more likely to chew through offers around 1.4402-1.4418 and make a move to 1.4459 levels, beyond which a stiff resistance is seen at 1.45-1.4514 levels.
Conversely, a dismal data may trigger a drop towards 1.43 handle, under which 1.4252 (50% of 1.4669-1.3835) stands exposed. However, bears need to observe caution as fresh demand could be anticipated on dips as long as 50-DMA at 1.4227 remains a support level.