The manufacturing PMI jumped from 51.5 to 53.2 while analysts expected the index would stay unchanged. Purchasing managers’ index is based on a survey of about 600 managers who are asked about their views on business conditions, including employment, new orders, prices, supplier deliveries and inventories. A figure above 50 indicates expansion in the economy. According to Bloomberg, the main source of new business was the domestic market and its resilience in the face of slowdown in the euro zone. The problems in the euro region have caused export weakness in the UK.
GBPUSD Weekly
GBPUSD, Weekly The recent dollar strength has not pushed GBPUSD significantly lower. Instead Sterling has been resilient in the face of USD rising against the other major currencies. This has resulted in consolidation between resistance (1.6185) and support (1.5875). The Stochastic Oscillator is still showing bullish divergence i.e. edging higher while the price moves sideways. So if the pair can keep on holding above the 1.5875 support level, even though the dollar index DXY trends higher, it is a significant sign of strength. If however sterling breaks lower, the next support level is at 1.5750, a weekly high from June 2013. This is also a 61.8% Fibonacci support (measured from the July 2013 low to June 2014 high), so it is a major support level and worth keeping in mind.
GBPUSD, 240 min
The Fibonacci cluster (at 1.6170 – 1.6197) that I wrote about in my previous GBPUSD analysis has still been a very relevant resistance area as the pair has yet again turned lower from the cluster. This resistance is now both a daily and a weekly high and coincides with the daily Bollinger Bands. The recent two days’ (plus today’s) price action has been bound to a very narrow range between 23rd October daily low and the support levels that I drew in my analysis published on that same day. It seems that my support level is well chosen and strong enough to turn price action higher from here. At the time of writing GBPUSD has broken out of a bullish wedge. A close above the 4h wedge and 1.5991 is a bullish sign and supports the idea of this momentum reversal continuing. If however the price stagnates longer at current levels, the probabilities of it breaking lower increase.
GBPUSD 60min
GBPUSD, 60 min. The Money Flow Index (MFI) shows bullish divergence (price makes lower lows, but indicator higher lows) while GBPUSD has on closing basis been staying above the support lines I drew on 23rd October. There was a quick spike below the lower level, but it was quickly rejected and the pair has since moved higher. I can see some intraday resistance between 1.6086 and 1.6100, which could serve targets for short term trades. A close above 1.6011 (Friday’s high) would be a buy signal for those who base their analysis on the daily charts.
Conclusion
The pair has acted pretty much according “to the plan”, i.e. it has been trading between the levels I suggested in my previous analysis. The only real obstacle has been the surprise strength in DXY (the dollar index), but the damage done to the GBPUSD has been quite minimal. The analysis from 23d October is still valid as the pair shows signs of momentum reversal. It seems that my support level is well chosen and strong enough to turn price action higher from here. At the time of writing GBPUSD has broken out of a bullish wedge. A close above the 4h wedge and 1.5991 is a bullish sign and supports the idea of this momentum reversal continuing. If we don’t see a move higher with some momentum from these levels, the risk of the price breaking below the support increases.
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.
Janne Muta
Chief Market Analyst
HotForex