British Pound: USD/GBP (GBP=X) Decline From Channel Resistance Signals Reversal Potential

British Pound: USD/GBP (GBP=X) Decline From Channel Resistance Signals Reversal Potential

British Pound: USD/GBP (GBP=X) Decline From Channel Resistance Signals Reversal Potential

The US dollar saw some reprieve in early day trading on Tuesday after President Donald Trump discussed a payroll tax cut late on Monday to help offset the negative impact the Coronavirus is expected to have on the economy.

The equity markets have pared back a bulk of yesterday’s deep losses while the US 10-year yield has nearly fully erased Monday’s sharp decline. On a trade-weighted basis, the dollar has erased a bulk of its drop from Monday.

While the prospects of fiscal stimulus in the US has lifted market sentiment in the early day on Tuesday, Sterling traders will look to the UK budget to see if Britain will follow suit.

The budget will be released on Wednesday and will be scrutinized for any implied easing measures and how the recent escalation in the Coronavirus may have impacted budget decisions.

In addition to the budget, the markets continue to expect the Bank of England to cut rates by at least a quarter percent at its March 26 meeting. The bank may also opt to cut rates sooner, after reviewing the latest budget. Last week, incoming BoE Governor Andrew Bailey commented that a rate cut was not imminent. At the same time, Bailey emphasized the importance of a coordinated move between the central bank and government.

GBP/USD sellers stepped in on a rally to the 1.3200 level in early trading yesterday and drove the pair sharply lower for a daily close below the upper bound of a declining trend channel. The pair is on track to post a bearish engulfing candle today, and a combination of the two technical developments signal a potential reversal.

A break below 1.3050 support targets a move towards 1.2961 which is a level that has acted as both support and resistance on numerous tests since October.

To the upside, bears will want to hold the pair below yesterdays daily close of 1.3122 to maintain the near-term bearish pressure.

Technical Indicators

Overall, the bias in prices is: Downwards.

By the way, prices are vulnerable to a correction towards 1.30.

The projected upper bound is: 1.30.

The projected lower bound is: 1.26.

The projected closing price is: 1.28.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 21 white candles and 29 black candles for a net of 8 black candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 42.7672. This is not an overbought or oversold reading. The last signal was a sell 1 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 43.89. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 61 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -38. This is not a topping or bottoming area. The last signal was a sell 1 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 3 period(s) ago.

Rex Takasugi – TD Profile

FOREX GBP= closed down -0.007 at 1.283. Volume was 12% above average (neutral) and Bollinger Bands were 14% wider than normal.

Open     High      Low     Close     Volume___
1.290 1.298 1.282 1.283 115,920
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 1.29 1.30 1.27
Volatility: 14 10 10
Volume: 124,130 109,762 111,170

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FOREX GBP= is currently 1.0% above its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of GBP= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on GBP= and have had this outlook for the last 43 periods.

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