2013.01.07: The ingredients for a break of support are present
EUR/USD
The anticipated drop for the pair occurred and price touched the support formed at 1.3020, although it didn’t re-test the broken level of 1.3140 like we expected. A bounce into up was then experienced, resulting in a higher close of the day.
Technical Outlook
The move up seen during Friday’s trading session does not change our bearish sentiment on the pair and we consider it a much needed retracement after such a big fall. Price dropped almost 300 pips in just two days so the sellers are in control of the market at the moment but probably profit taking at the 1.3020 support pushed price higher (the process of closing a sell trade implies buying). At the moment price shows a small rejection from the 50 period Simple Moving Average and Bearish Divergence is present so this could be a good place for the retracement to end and the down trend to resume. We are not dismissing any moves higher but we find them less probable.
Fundamental Outlook
Mondays are usually slow in terms of economic indicators releases and today the only events that could affect the pair come from the Euro zone in the form of the Sentix Investor Confidence and the Producer Price Index. Usually both these indicators have a very light impact on the market and sometimes can even go unnoticed by traders, but surprising numbers could generate some movement. No data concerning the US Dollar is scheduled for release today.
GBP/USD
Since the false break of the strong resistance established at 1.6300, the pair has been in a clear and strong downtrend, apparently breaking the support at 1.6040 during Friday’s trading session before retracing above it.
Technical Outlook
Although price at the moment sits above support, we consider that today another attempt at breaking it will occur. The fact that price could not break the 1.6040 level on the first attempt is not indicative of downtrend weakness, but rather a short term seller exhaustion and some profit taking, just like we mentioned on our EUR/USD technical outlook. The Hidden Bearish Divergence is present in the GBP/USD pair as well and we expect a down trend resumption during today’s trading session.
Fundamental Outlook
The only notable economic indicator released today for the British Pound is the Halifax House Price Index, coming out at 08:00 am GMT with an expected decrease from a previous of 1.0% to 0.2%. Actual numbers higher than 0.2% could strengthen the Pound and drive the pair higher, but this indicator is not known as a strong market mover so we don’t expect major moves to be generated by its release.
Written by: Bogdan Giulvezan
The article above is based on the writer’s 4 year experience and it does not constitute trading advice or investment recommendations, just a personal opinion and view on the market.