Longs in GBPUSD are more and more attractive

7 mag 2018

Analyzing dynamics of GBPUSD on daily graph we find more and more convincing evidences in favor of incoming correction. Technical picture is “armed and ready” for reverse: RSI (8) is near 15 ( which is absolutely abnormal) and starting to reverse, ADX is in extreme high zone as well as MACD, more than a week daily closes are below the lower Bollinger band. Summarizing all these with rather important support zone near 1.35, it can be concluded that technically GBPUSD is ready for correction. And it can start just right now from the current prices.

As for the fundamental background, the latest data on US job market were not absolutely disappointed, but were rather weak. NFP were much lower than expected (actual +164K vs expected 193K). One more bad sign for the dollar is the fact that hourly earnings were weaker than forecast. Let us remind that dynamics of wages is closely monitored by the FED as an indicator of inflationary processes in the US.

We think that the latest US job market data send warning signal to the Fed or at least give one more reason to think about the pace of tightening the monetary policy. This in turn can cool down the optimism in the treasuries market and yields will fall. The result of this will be the fall of the dollar.

As a positive for the pound fundamental factor we treat the results of local elections in the Great Britain. Conservatives led by Premier Theresa May keep their positions in many key regions. This is very important because of the many scandals in the internal UK policy. So these results are some sort of relief.

One more thing to consider. This week Bank of England will make a decision on monetary policy. If the Central bank will not fail, the pound can find significant support and reasons to growth.

Overall we recommend to buy GBPUSD from the current prices. Technically correction is ready. Fundamentally there are no serious barriers for this. Potential of this trade is very significant – up to 400-500 pips. At the same time risks are very limited – stop losses could be set below 1.3450.