GBP/USD Swings on CPI, Brexit as the US Dollar Digs into Support

66

Talking Points:

– The British Pound has seen some two-way volatility this morning, initially jumping on a stronger-than-expected inflation print from the month of August, showing the second consecutive month of inflation gains after the earlier-year drawdown in the indicator. This was soon offset by negative Brexit headlines, and prices erased the entirety of that earlier gain and then some. At this point, the big question is whether buyers come-in to defend higher-low support, keeping the door open for bullish continuation; or whether we see a deeper retracement develop.

– Both EUR/USD and DXY are holding around similar levels as yesterday. EUR/USD put in another test of key resistance while USD/DXY continues to hold around the August/September swing-lows. We discussed these themes in-depth in our webinar yesterday entitled, US Dollar Price Action Setups as USD Wobbles at Support.

– DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

British Pound Swings on CPI, Brexit Headlines

The big mover so far on the morning is the British Pound, which has caught pushes in both direction so far on the day. The first move in the currency after the Euro open was bullish, as prices jumped-higher upon the release of August inflation numbers. But shortly after that spike, negative Brexit headlines began to show and this helped to pull the currency back – and then some – so that we’ve already erased the entirety of the earlier-morning ramp. As we discussed earlier this month, Brexit headlines are likely going to continue to push prices in both directions. But – a bullish bias has continued to hold since the mid-August low came into play, and the big question is whether we see bulls defend the line as prices pull back.

GBP/USD Hourly Price Chart: Jump on CPI Reverses on Brexit Headlines

GBP/USD Swings on CPI, Brexit as the US Dollar Digs into Support

Chart prepared by James Stanley

We’ve been following the slow build of bullish price action around the British Pound since those mid-August lows came into play. What started as an apparent short-squeeze with overbought conditions has transitioned into a bullish near-term trend.

The low in August printed around the 23.6% Fibonacci retracement of the Brexit move; and this same Fibonacci study helped to mark the top in the pair in mid-April at the 78.6% marker. But last week saw the 38.2% retracement of this major move show up, and this rests at 1.3117. We were looking for bulls to pose a topside push above this level to prove continuation potential, after which the prospect of higher-low support can open the door for strategies around bullish continuation.

Well, now that we have the test above resistance, the prospect of higher-low support for bullish continuation plays can become attractive in the pair. There are two zones of interest that we’ve been following taken from recent price action: The nearby zone runs from 1.3034-1.3065 with a second zone just below the 1.3000 psychological level. One item of disconcert, and a factor that may keep the prospect of a deeper retracement as a workable theme is the fact that this morning’s sell-off pushed prices below the aggressively bullish trend-line that’s built over the past two weeks. This may be part of a rising wedge formation, which will often be looked to for bearish reversal strategies. So – for those that do want to look at the long side, ensure that support is at a workable level with which risk can be properly managed – because given the pace of headlines around the British Pound, this thing can come back down just as quickly, if not more so, than it had moved-higher.

GBP/USD Two-Hour Price Chart: Tests Below Trend-Line Support, Proceed with Caution

GBP/USD Swings on CPI, Brexit as the US Dollar Digs into Support

Chart prepared by James Stanley

US Dollar Holds the Line of Support: Bears Not Ready, Bulls Not Enthused

There isn’t much new to write about here so we’ll keep it simple. Prices remain in a very similar spot as what we saw yesterday, with USD price action gripping on to the lines of support as bears try to push-below. This keeps the descending triangle formation in play, which will often be approached in a bearish manner. But – as we said in yesterday’s webinar, this isn’t bearish until sellers start to make new ground, and traders would likely want to strive for some element of balance around the US Dollar until a more confirmed trend is seen, in one direction or the other.

US Dollar Two-Hour Price Chart: Bears Tip-Toe Below Support, But Unable to Break Through

GBP/USD Swings on CPI, Brexit as the US Dollar Digs into Support

Chart prepared by James Stanley

EUR/USD: Another Resistance Test, Trend-Line Support in-Play

Going along with that test of support in the US Dollar, we have another test of resistance in EUR/USD. While bulls have persistently pushed up to this zone for a third time already in September, the corresponding pullbacks have grown weaker in size – indicating that bears are losing motivation as resistance continues to get tested.

EUR/USD Eight-Hour Price Chart: Bullish Breakout Potential as Frequency of Resistance Visits Increases While Bulls Get More Aggressive on Support Tests

GBP/USD Swings on CPI, Brexit as the US Dollar Digs into Support

We’ve seen a bullish trend-line develop off of the lows since last week, taken after another failed test to break through the 1.1530 level. Prices are testing below this trend-line, and just a bit-lower we have an area of short-term higher-low support that runs from around 1.1605-1.1618. This would be an ideal area for buyers to show their hand if they are, in-fact, going to be able to take out this big zone of resistance ahead of the Q3 close.

EUR/USD Two-Hour Price Chart: Testing Trend-Line Support, Yesterday’s Lows

GBP/USD Swings on CPI, Brexit as the US Dollar Digs into Support

Chart prepared by James Stanley

Yen Weakness Holds Through BoJ

Last night brought a Bank of Japan rate decision to markets, and we’re still not out of the woods yet on JPY drivers for this week; as we also get a CPI report on Thursday evening, combined with elections for the ruling LDP party.

USD/JPY rose to a fresh eight-week high ahead of the release, and a bit of resistance started to show around the 76.4% Fibonacci retracement of the November, 2017 to March, 2018 major move. This held through last night’s BoJ rate decision, and we’ve seen a bit of pullback show after the US open. The big question is whether we see higher-low support around areas of prior resistance, and there are two nearby areas of interest to watch for the development of such a theme. At 112.13 we have the August swing-high, and this gave a bit of resistance last week. And a bit lower, from around 111.64 up to 111.83 we have another zone, taken from the mid-August swing-highs to this week’s swing-low.

USD/JPY Four-Hour Price Chart: Resistance Hold at 76.4%, Will Bulls Hold the Line of Higher-Low Support?

GBP/USD Swings on CPI, Brexit as the US Dollar Digs into Support

Chart prepared by James Stanley

GBP/JPY Volatility Picks Up as Headlines Drive the Flow

Taken from the drivers over the past 24 hours, it’s been an interesting outlay in GBP/JPY. The pair was jumping-higher since a support test at 140.00 in mid-August, and that run had hastened over the past week as both Yen-weakness and GBP-strength became more pronounced.

This morning saw a key Fibonacci come into play for resistance, and this takes place at 148.55, which is the 23.6% retracement of the Financial Collapse move in the pair. And fourteen pips above that at 148.69, we have the 23.6% retracement of the 2017-2018 bullish move in the pair, so there was an element of confluent at work. This zone helped to hold this morning’s highs after that CPI report, and prices have started to pullback around a combination of negative Brexit headlines and a tinge of Yen-strength; and now the big question is whether we see bulls come into defend the 147.04 level, which is the 61.8% retracement of the ‘Abenomics’ move in the pair. Perhaps more importantly, this level has exhibited numerous items of interest in GBP/JPY over the past year, including the formation of a double-bottom in Q4 of last year, and most recently helping to set the swing-high in the pair ahead of the early-August sell-off. A hold of support here could be approached in a bullish manner, looking for continuation of the recent up-trend in the pair.

GBP/JPY Four-Hour Price Chart: Fibonacci Resistance Holds the Highs, Will Buyers Show Support at Prior Resistance?

GBP/USD Swings on CPI, Brexit as the US Dollar Digs into Support

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q3 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

LEAVE A REPLY

Please enter your comment!
Please enter your name here