WWM - Analytics


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Today’s Trading Edge: GBP/USD may weaken as market expectations shift to favoring a December Fed rate hike

The British pound continues to trade below well below both the 50- and 200-day SMA(s), but has tentatively found support just ahead of the psychological 1.50 handle.  The recent weakness stemmed from the unequivocally robust US jobs report.  Expectations are now strongly in favor for the Federal Reserve to finally to raise rates at the conclusion of the December 15-16 meeting.  However, in the short-term with little US economic news coming out until Thursday, we may see price trade range bound with 1.5150 providing initial resistance. 

Even though Bank of England Governor Carney is touting that it is reasonable to expect the BOE to tighten in 2016, sterling may have difficulty catching a major bid against the U.S. currency.  Last week, the UK printed better than expected manufacturing data, but the British pound was unable to overcome the broadly stronger US dollar.   

 The GBP/USD daily chart shows that since price respected the major resistance 1.5500 level, downward momentum has taken price below both key SMA(s).  If we see the 1.50 handle break, we could see strong selling pressure target the 1.4850 region.  It is around that area that a bullish butterfly pattern could form.  Point D of the bullish reversal pattern is targeted by both the 161.8% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move.  If valid, we could see price stabilize and rebound towards the 1.5200 level.   

If the US dollar sees a major correction, major resistance may come from the 1.5800 zone.  A daily close above the 1.5850 could open the door for further momentum to target the 1.6000 region.

The trade: Sell GBP/USD at 1.5150 with a stop loss at 1.5250 and a take profit at 1.4850.  The Risk/Reward Ratio is 1:3


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