Cable shows weakness in GBP/USD

Cable shows weakness in GBP/USD

By: Simon Furman | Where To Trade | On:16-10-2014 10:04
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Key Highlights

  • Poor fundamental economic data causes the GBP to Fall
  • Sharper drop anticipated for GBPUSD
  • GBPCHF Subjected to GBP USD moves

 

GBP

A stream of soft economic data coming from the UK, We have seen the Cable fall across the board against the entire major currencies basket. The market is now ready for some correction. Since there are no other major fundamental developments expected to be released from the UK, we are looking for the GBP pairs to be relatively susceptible to news from other economic regions especially from the USA.

 

Technical analysis

GBP/USD

 This week the GBPUSD we’ve already seen the GBP USD touch its 11 months low yesterday at 1.5873. Since Monday, we have fallen over 200 pips. The price is experiencing significant resistance just 10 pips above the 1.5852 level which is the low of November 2013.

 

Where To Trade - GBPUSD Daily 16-10-2014

 

The 14 period moving averages are moving well above the prices on the weekly and the daily time frames. This is an indication that the bearish momentum is strong and likely to continue. The monthly chart further reinforces this view; the 14 period moving average has just crossed the candle sticks. This is a very bearish signal to go short the pair.

The stochastic and RSI from the Daily chart have a reading of 37.93 and 27.61 respectively. They both indicate slightly oversold conditions on the weekly chart; 14.28 for the stochastic and 29.89for the RSI. On the monthly chart, the RSI indicates that we are at oversold conditions at a reading of 11.47 while the RSI has a neutral reading.

 

Where To Trade - GBPUSD Weekly 16-10-2014

 

From these readings we anticipate that he current bullish pressures will subside and that the bears will push this pair below the 1.599 level.

 

Where To Trade - GBPUSD Monthly 16-10-2014

 

GBP/CHF

From the daily charts the 14 period moving average is trading well above the candlesticks, this indicates that the bearish momentum in the medium term is strong.  We can anticipate that the price will resume the bearish moves once the current price rejection from the low of September at 1.4972 subsides.

The RIS is giving a neutral reading at 35.89 while the stochastic, at 17.21, is about to leave the oversold conditions.

 

Where To Trade - GBPCHF Daily 16-10-2014

From the weekly chart, the 14 period moving average has just touched the prices. This may be an indication that the preceding up trend has ceased for conformation however we need the moving average to complete its bearish cross.

Where To Trade - GBPCHF Weekly 16-10-2014

In the weekly time frame, both the RSI and the Stochastic are giving neutral readings at 47.56 and 61.67 respectively. From this pair we can see that the longer term uptrend is being tested. We need conformation that a new trend is in place in order to take short positions on the daily time frame.

 

Wrap up

Given the significant market share of the GBPUSD relative to the GBPCHF, if we do get a bearish confirmation on the GBPUSD that the cable is still weak, we can take a short position on the GBPCHF without the conformation form the weekly chart. We anticipate that the massive selloff of the cable happening on the GBPUSD will ultimately pour on to all other cable pairs.

Under these conditions an aggressive approach in order to catch more bearish pips from the GBPCHF trend reversal is to go short the GBPCHF cross with a hedge against any strengthening of the CHF. 

Simon Furman

Simon Furman

Think Global - Act Local

Simon Furman is one of the best financial analyst with 27 years of trading experience

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