A Mixed Week Ahead for the GBPUSD on Rate Decisions

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A Mixed Week Ahead for the GBPUSD on Rate Decisions

By Adam Teen | Tuesday, November 1st, 2020

The GBPUSD failed to gain any more ground after it made its decline last week. By the close of Monday’s Asian session, the price still lingered close to Friday’s closing price of 1.2189 marking a flat weekly open.

It has been a 2 week period marked by stronger bearish moves in stark contrast to the bullish recoveries.

The trend on the 1 hour chart has been bottled below a declining 200MA for the greater part of recent trading, with the Oct 25 th – 27 th recovery failing on Thursday at 1.2270.

The same level remains an important one to watch for today’s trading because it is our immediate resistance.

Interesting support/resistance levels emerging

On what will seem to be a very mixed trading week for the cable, the main important level for the bears is the 1.2000 psychological level. Owing to the view that the recovery that began after the 25th October bottom (1.2081) failed to move above 1.2270, it is very possible that the bears will attempt a second dash towards the 25 October bottom or even lower.

GBPUSD 1 hour chart

There is formidable selling pressure continuing from the last few sessions. That is evident in this setup because the 1.2270 high set on 27 th October is still lower than its preceding high of 1.2330 set on 19 th October.

News Events to give mixed movement

The Sterling will be under close watch for the greater part of the week because there are major news events touching no both elements of the pair. The main headlines affecting the sterling are to do with the BoE announcement on its Monetary Policy decision on Thursday.

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A current inflation report will be given along with the announcement. Most pointers are towards the rates remaining at their current level, but to be certain, it would be important to wait for the actual outcomes of the meetings. The 3Q GDP data are also set to be reported on the same day.

Typically, the USA’s Federal Reserve aligns its rate decisions with close consideration to what the BoE does. Expect a shaky week for the GBPUSD.

Bias is neutral for the moment

At the moment, the GBPUSD is trading at 1.2184, with a very volatility seen in the market. By the time the London session opened, the pair had only managed to trade tightly within a 50 pip range. For most of the European session, there is a high change that price will squeeze itself towards a tight triangle before breaking lower.

FX Week Ahead – Top 5 Events: July UK Inflation Report & GBP/USD Rate Forecast

July UK Inflation Report Overview:

  • The July UK inflation report (consumer price index) is due out on Wednesday, August 14 at 08:30 GMT, but the data will continue to be overshadowed by Brexit.
  • GBPUSD continues to get hit hard since Boris Johnson took office as UK prime minster , not exactly a surprise given his lack of concern – or rather, desire – for a no deal, hard Brexit.
  • Retail traders have remained net-long since May 6 when GBPUSD traded near 1.2993; price has moved 7.5% lower since then.

Join me on Mondays at 7:30 ED T/1 1 :30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

08/14 WEDNESDAY | 08:30 GMT | GBP CONSUMER PRICE INDEX (JUL)

For any other currency, a data release with a ‘high’ rating would likely stir meaningful volatility. But for the British Pound haunted by the prospect of a no deal, “hard Brexit,” economic data releases have been neutered. It remains the case that if the Brexit negotiations are in the works, the Bank of England won’t act on interest rates, and therefore data related to policy decisions have been downgraded in terms of expected impact on markets. Considering this reality, any Brexit-related developments, especially now that rumors of a snap general election are afoot, would quickly supersede any reaction to the July UK inflation report.

Pairs to Watch: EURGBP, GBPJPY, GBPUSD

GBPUSD Technical Analysis: Weekly Timeframe (June 2020 to August 2020) (Chart 1)

A look at the weekly timeframe highlights the destruction that Brexit has wrought upon the British Pound. Since Boris Johnson became UK prime minister, the GBPUSD has accumulated losses each week, and the latest turn lower saw GBPUSD breakdown through the March 2020 low at 1.2109. Now, the January 2020 low is in focus at 1.1986, with the post-Brexit vote in October 2020 coming into focus shortly thereafter at 1.1905.

GBPUSD Technical Analysis: Daily Timeframe (April 2020 to August 2020) (Chart 2)

In our last GBPUSD technical forecast , we suggested that “as is often the case with symmetrical triangle breakdowns, there is a likelihood of a return to the base of the triangle; in this instance, with a bearish break occurring, we’ll be looking for GBPUSD to return to the downside base of the symmetrical triangle, set in October 2020, at 1.1905 over the coming weeks.”

Progress has been with respect to this effort, with GBPUSD falling to a fresh yearly low by Friday, August 9, closing the week at 1.2023. With bearish momentum firm on not only the weekly timeframe but the daily as well – price remains below the daily 8-, 13-, and 21-EMA envelope while both daily MACD and Slow Stochastics trend lower in bearish territory – GBPUSD remains on course for a return to the October 2020 low at 1.1905.

IG Client Sentiment Index: GBPUSD Rate Forecast (August 9, 2020) (Chart 3)

GBPUSD: Retail trader data shows 80.3% of traders are net-long with the ratio of traders long to short at 4.08 to 1. In fact, traders have remained net-long since May 6 when GBPUSD traded near 1.2993; price has moved 7.5% lower since then. The percentage of traders net-long is now its highest since Jul 31 when GBPUSD traded near 1.21589. The number of traders net-long is 0.6% lower than yesterday and 2.6% lower from last week, while the number of traders net-short is 15.2% lower than yesterday and 8.7% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment ; quarterly trading forecasts ; analytical and educational webinars held daily ; trading guides to help you improve trading performance , and even one for those who are new to FX trading .

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

The Week Ahead – Non Farm Payrolls, BoE and RBA Rate Decisions in Focus

As we enter the first week of August, a busy week is upon us with important economic events that might change the current trend.

Financial markets have concluded the recent updates as the Federal Reserve switched its rate hike outlook and economic growth, and the dovish sentiment has affected US dollar and commodities.

Here are the main economic events of the upcoming week:

US Non-Farm Payrolls

The crucial US non-farm payrolls will be released on Friday at 12:30 GMT. Expectations are for an increase of 183,000 this month following the better than expected data in June of 222,000 new jobs.

Investors will also focus on the employment rate after a decrease in the previous month to 4.3% from 4.4%. Moreover, investors will focus on the average hourly earnings that are expected to rise to 0.3% from 0.2% a month earlier.

A good reading can change the Fed rate hike plans after a dovish outlook in their last meetings and comments.

Eurozone CPI

The Eurozone will release its core inflation figures for July on Monday at 9:00 GMT. The core inflation rate is expected to remain steady at 1.1%, well below the ECB inflation forecast of 2%.

The Eurozone will also publish its second-quarter economic growth on Tuesday at 9:00 GMT. YoY GDP is expected to rise to 2.1% from previous of 1.9%. QoQ is expected to hold at 0.6%.

Bank of England Interest Rate Decision

The BoE will release its interest rate decision on Thursday at 11:00 GMT. Investors will pay close attention to the BoE governor Mark Carney press conference after the interest rate announcement.

Analysts expect the BoE to hold rates at record low, however, the previous meeting 5-3 vote and mixed economic signals make the meeting to be ‘expect the unexpected’.

Reserve Bank of Australia Interest Rate Decision

The reserve bank of Australia will announce its rate decision on Tuesday at 5:30 GMT. Analysts consensus is for the central bank to keep rates unchanged at 1.5%.

Investors will keep an eye on any comments from RBA members as they wish to predict whether the AUD will continue its big rally or a shift in trend is ahead of us.

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