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Pound Joins Euro Slide, Drops against US Dollar - $1.6000 in Question

Pound Joins Euro Slide, Drops against US Dollar - $1.6000 in Question

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- The European continues continue to weaken, led by softer PMI Manufacturing data.

- The single Euro-Zone currency was the worst daily performer again.

- Cable at significant support, otherwise Double Top in play towards $1.5600.

To keep up with the European data and news as the week goes forward, be sure to sign up for my distribution list.

Intraday Price Perspective

Pound_Joins_Euro_Slide_Drops_against_US_Dollar_-_1.6000_in_Question__body_Picture_1.png, Pound Joins Euro Slide, Drops against US Dollar - $1.6000 in Question

A look at the Strong/Weak app shows that while the EURUSD has been one of the worst performing currency pair over the past rolling 24-hour period (D1) once again, it’s the GBPUSD that’s been underperforming more noticably on the short-term timeframes (m15, H1) after this morning’s data. Now, a more significant technical breakdown may be beginning.

TECHNICAL ANALYSIS – CHART OF THE DAY

GBPUSD H4 Chart: September 9 to Present

Pound_Joins_Euro_Slide_Drops_against_US_Dollar_-_1.6000_in_Question__body_x0000_i1028.png, Pound Joins Euro Slide, Drops against US Dollar - $1.6000 in Question

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The GBPUSD is penetrating two ascending TLs to the downside: first, off of the July, August, and October lows (solid black); and second, off of the August 28 and October 10 lows (dotted black). Concurrently, on the H4 timeframe, a series of lower lows and lower highs has developed in price as RSI (21) breaks down through significant support off of the July and October lows.

If a bounce were to materialize, this would be the area for the GBPUSD, having seen consolidation occur between October 9 through 17, from 1.5925 to 1.6000; demand has proven strong enough here to absorb modest selling as the pair faded from near the yearly high (1.6342 on January 2, first trading day of 2013).

A more significant breakdown would occur in the GBPUSD should price undercut 1.5890/925, suggesting a Double Top against 1.6250, calling for a move into 1.5530/600 through the end of the year.

Here’s a look at the data out of Europe this morning that’s influencing price action:

EURO-ZONE ECONOMIC CALENDAR

There is no data on the Euro economic calendar for Friday, November 1, 2013.

Read more: Euro Worst Performer Past 24-hours after Fed, Weakening Euro-Zone CPI

UK ECONOMIC CALENDAR

Pound_Joins_Euro_Slide_Drops_against_US_Dollar_-_1.6000_in_Question__body_x0000_i1029.png, Pound Joins Euro Slide, Drops against US Dollar - $1.6000 in Question

The UK manufacturing sector continues to grow at an impressive rate relative to other developed economies, although the slightest sign that expansion may be occurring at a more modest pace has provoked weakness in the British Pound today.

Even as the UK economy exhibits resiliency, it’s worth noting that the Citi Economic Surprise Index has fallen to 20.50 today from a high of 113.30 on August 19; data has lost its luster relative to expectations, undercutting fundamental momentum supporting the British Pound.

While the GBPUSD is exposed to a more concerted technical pullback (as suggested above), the UK economy’s resilience should help keep the British Pound supported elsewhere (against the Euro, the Swiss Franc.)

Accordingly, a GBPUSD turnaround, while aided by modestly weaker UK economic data, will really need to find fuel in the USD component; higher US yields if QE3 expectations realign for a December Federal Reserve taper of QE3 would help, for instance.

Read more: UK Growth Rate Accelerating but GBP/USD Profit Taking May Begin

SWISS ECONOMIC CALENDAR

Pound_Joins_Euro_Slide_Drops_against_US_Dollar_-_1.6000_in_Question__body_x0000_i1030.png, Pound Joins Euro Slide, Drops against US Dollar - $1.6000 in Question

Read more: US Dollar: Next Leg of Collapse Rests in FOMC’s Hands

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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