Here’s Why The Pound Could Come Under Pressure
Overnight the dollar was not able to hold onto its gains from the New
York session as what we consider to be a potential near-term low is being set at
the 83.60 level. As mentioned yesterday, sentiment remains rather bearish and
there are some technical divergences appearing on the charts. Nonetheless,
calling a bottom is often a fools game, but with patience and proper risk
management, can be accomplished.
We were stopped out of our EUR/AUD
short yesterday after adjusting the stop loss lower. We managed to pick up
roughly 135 pips on the trade, but with stochastics on the daily chart beginning
to edge higher, it was prudent to take the money off the table for now. We also
established a long in USD/CHF yesterday which got off to a solid start, but
selling at the open on the London session took us out of our trade given that we
had a relatively tight stop loss. We will continue to monitor this pair for
another long entry. For now, we are flat, but have managed to put in a good
performance so far in November. In the days to come, we will likely be in the
market again, for now, let’s watch and stalk solid entry points.
Overnight also saw the release
of the UK October RICS house price index. It fell to -41 from -30 – lower than
expected and also making a 12-year low. While the reaction on the GBP/USD was
muted, we need to look at this as further evidence that rate hikes have
concluded in the UK, and the result could be a pound that comes under pressure.Â
With two large resistance levels looming at 1.8600 and 1.8773, we should be on
the lookout for some technical deterioration as a way to signal some short
opportunities.
^next^
Technical Notes:
EUR/USD:Â not much to report
here. The 1.3000 level remains the big beacon for traders, but price action
remains sloppy and erratic. Look for intra-day levels at 1.2900, 1.2946 &
1.2982.
GBP/USD:Â as mentioned above,
macro data not supporting a stronger pound, but technical picture still looks
ok. Intra-day levels are seen at 1.8560, 1.8495 and 1.8420. The 1.8420 level
is also close to a bull trend-line from early October.
USD/CHF:Â base building
continues here. Despite being stopped out of our long overnight, we view it as
“tuition paid†towards a solid long that should pay off quite well. Intra-day
levels are seen at 1.1697, 1.1723, 1.1770. A break above 1.1830 would violate
the bear trend channel from early October. Given that USD/CHF is completing a
wave pattern, this would be a valid long signal.
USD/CAD:Â firm commodity prices
and a budget surplus unlike other G10 countries, the Canadian dollar remains a
popular choice for traders and investors. Nonetheless, you cannot ignore that
daily and weekly charts are quite oversold, but with some strong macro
underpinnings, trying to catch the bottom is not the favored bet. Intra-day
levels are seen at 1.1900, 1.1917, 1.1990. Only a move back above 1.2084 would
get us to consider going long this pair.
Dollar Index:Â stochastic and
RSI divergences on daily chart indicate that a bottom might be forming. As
mentioned yesterday, a catalyst is needed to get traders to buy en masse. This
morning the 87.73 level is holding well but a move towards 83.42 cannot be ruled
out. Resistance is seen at 84.08 and 84.20. A break above 84.75 is needed to
break current down-trend that started in late September.
Dave Floyd