Technical Sentiment: Bearish
Key Takeaways
- U.K. Average Earnings Index 3m/y bearish forecast at -0.1% vs. 0.3% in July;
- U.K. Claimant Court Change and Unemployment Rate due early Wednesday (bullish expectations);
- BOE Gov Carney speech and the Inflation Report are possible triggers for action as well;
- Downtrend is about to be put to the test at 1.5305 – 1.5358.
With Euro taking a turn for the worse and U.S. JOLTS Job Openings disappointing, investors focused on GBP today, buying the rumors ahead of what should be a very volatile day tomorrow.
Technical Analysis
GBP/CHF has been trending lower since the second half of July within a bearish channel, forming an easily identifiable formation of Lower Highs and Lower Lows. A tight consolidation around 1.5214 managed to put both sides on the edge, however buyers came out ahead today lifting the pair all the way up to 1.5275 (50 SMA on the 4H time frame / 200 SMA on the hourly chart). There’s still some wiggle room until buyers will run into the resistance of the channel, where the real decision will take place concerning the overall direction.
In addition to the channel resistance, 1.5300/15 was a support level in July and might turn into resistance this time around. Having both the 100 and 200 Simple Moving Averages in this area (on the 4H time frame) only strengthens the scenario of GBP/CHF forming a Lower High before turning back to lower levels. If the pair does indeed reject from 1.5300/15, a 150pip+ dip is very likely in the coming days and early next week. Support levels are as follows: 1.5220, 1.5165 and 1.5114.
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A rally above 1.5300/15 will put the recent GBP/CHF downtrend at risk. Buyers will be enticed to take out the most recent LH at 1.5358, which in turn would pave the way for more gains up to 1.5431. Whatever happens tomorrow, 1.53 should be treated as the separation point between bullish and bearish territory, so traders are advised to manage their positions accordingly. Don’t hold long position below the pivot and don’t sell above (unless eye-popping price action signals develop on the spot).
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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets
