Near-term Setups in EUR/USD and GBP/USD

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GBP/USD 120min Price Chart

GBP/USD Price Chart - 120min - 10/12/2018

Earlier this week we highlighted the potential for a breakout in GBP/USD as prices continued to trade within the confines of a clear weekly / monthly opening-range. Our bottom line noted that we were, “looking for a breakout of the 1.29-1.3165 zone to validate our medium-term outlook. From a trading standpoint, I’ll favor fading weakness in Sterling while above 1.30 targeting a breach above daily slope resistance.”

A breach higher on 10/9 took out three of our topside targets before turning just ahead of our final resistance objective at 1.3290-1.3317 – this region is defined by the June open, the December swing low and the 38.2% retracement of the yearly range. A breach of this region is critical to fuel the next leg higher in price with the rebound at risk near-term while below. Friday’s sell-off is poised to mark an outside-day reversal off the 100% extension of the monthly advance at 1.3239 and threatens a larger pullback in Cable.

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Sterling is testing initial support now at 1.3155 with near-term bullish invalidation at 1.3129– a break there would suggest a larger pullback is underway with such a scenario targeting a drop towards more meaningful support at 1.3031/50 – an area of interest for possible exhaustion / long-entries IF reached. Bottom-line: risk for a bigger pullback near-term but we’ll continue to favor fading weakness in British Pound with topside breach targets unchanged at 1.3363 and yearly slope resistance, currently around ~1.3420s. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

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GBP/USD Trader Sentiment

GBP/USD Trader Sentiment

  • A summary of IG Client Sentiment shows traders are net-long GBP/USD – the ratio stands at +1.34 (57.3% of traders are long) – weak bearishreading
  • Traders have remained net-long since September 20th; price has moved 0.7% higher since then
  • The percentage of traders net-long is now its lowest since September 28th
  • Long positions are 10.8% lower than yesterday and 9.9% lower from last week
  • Short positions are 0.2% lower than yesterday and 4.0% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Yet traders are less net-long than yesterday & compared with last week and the recent changes in sentiment warn that the current GBP/USD price trend may soon reverse higher despite the fact traders remain net-long.

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EURUSD Daily Price Chart

EUR/USD Price Chart - Daily - 10/12/2018

Heading into the start of October trade, I highlighted a major price support zone in my EURUSD Weekly Technical Perspective – “Bottom line: Looking for signs of downside exhaustion while above 1.1498 for now. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops with the near-term focus on a possible long-entries.” Price briefly extended into a low 1.1432 before posting a daily doji off confluence slope support. The subsequent rally failed this week at the 61.8% parallel of the June/August pitchfork with Euro paring a portion of the advance on Friday.

The outlook is similar to that of Sterling in that we’re looking for this pullback to offer more favorable long-entries early next week and IF Euro is heading higher, losses should be limited to the monthly low-day close at 1.1490– (note this level converges on slope support mid-week and will serve as our bullish invalidation mark). Key confluence resistance stands at the 1.1617/25 where the monthly open converges on the 50% retracement of the late-September decline and the 100-day moving average. I’ll publish an updated EUR/USD scalp report once we get some further clarity on near-term price action – for now, look for price exhaustion on a drive back towards 1.1500.

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-Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex or contact him at mboutros@dailyfx.com