Sterling bulls gave up after strong upside rejection just under falling 30WMA (1.3183) on Wednesday and subsequent pullback which generated negative signal on formation of bearish outside day on Thursday.
Hawkish tone from Fed on Thursday, after leaving interest rates unchanged as expected, but pointed at strong growth, reaffirming expectations for rate hike in December, inflated the dollar and kept pound in defensive mode.
Cable extends weakness in early Friday’s trading through converging 100/55SMA’s and pressuring pivotal 1.30/1.2980 support zone (psychological support/Fibo 38.2% of 1.2857/1.3174/daily cloud base).
Firm break here would add to negative signals on confirmation of reversal pattern.
Daily slow stochastic heads south after reversing from overbought zone and supports scenario but momentum is still firm and conflicting bearish signals.
Ability to hold above 1.30 zone would keep bulls in play for fresh attempts higher as overall sentiment is positive on Brexit optimism.
Immediate focus turns towards UK data, with UK GDP forecasted higher in Q3 (q/q 0.6% vs 0.3% prev/y/y 1.5% vs 1.3%), Manufacturing production expected to pick up in Sep (0.1% f/c vs -0.2% prev) while trade gap is expected to widen slightly in Sep (-11.4B f/c vs -11.20B prev).
Stronger than expected figures would offer fresh support to sterling and signal an end of corrective phase, while weak numbers would add to negative near-term outlook.
Res: 1.3033, 1.3055, 1.3071, 1.3149
Sup: 1.3000, 1.2980, 1.2958, 1.2935
