GBP/USD Eyes Last Line of Defense Ahead of UK Jobs, US CPI

2017-01-17 18:17:00

Talking Points

GBP/USD Responds to slope support- Key resistance 1.2433
Updated targets & invalidation levels
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Technical Outlook: Sterling rebounded off median-line support yesterday extending off the July high with the subsequent rally now approaching structural downtrend resistance at 1.2381-1.2433. This zone is defined by the 50% retracement of the December decline, the upper median-line parallel extending off the September high and the 2016 low-day close.

Note that the pair has been marking bullish divergence into these lows and we’ll be looking for a close above the resistance trigger to further validate this shift in behavior. A close above this region would be needed to suggest a more significant low is in place with such a scenario targeting the 100-day moving average at ~1.2560s.

GBP/USD240min

Notes: A closer look at price action highlights confluence resistance at the upper parallel, backed closely by 1.2433- This is the last line of defense for the downtrend off the July highs. A breach / close above 1.2474 (61.8% retracement) eyes subsequent topside objectives at 1.2589, 1.2671 & 1.2767.

Bottom line: If sterling has made a near-term low, price should hold above the Friday close / 50-line around 1.2177 with a break sub-1.2044 needed to mark resumption of the broader downtrend. From a trading standpoint, we’re at risk for a pullback here & we’ll be looking for a pullback to offer favorable longs while above the median-line. A quarter of the daily average true range (ATR) yields profit targets of 34-37pips per scalp. Caution is warranted heading into UK employment & U.S. CPI data tomorrow with the releases likely to fuel added volatility in the GBP & USD crosses.

A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are net short GBP/USD- the ratio stands at +1.29 (56% of traders are long)- weak bearish reading
Long positions are 17.2% lower than yesterday and 23.8% below levels seen last week
Short positions are 94.2% higher than yesterday and 87.4% above levels seen last week
Open interest is 10.5% higher than yesterday & 15.7% above its monthly average.
The current dynamic of increasing short-exposure on building open interest suggests the immediate risk remains higher. Look for a flip to net short in the days to come to suggest a more significant reversal is underway.

Relevant Data Releases