GBPUSD Major Correction (Nov 04, 2016)

GBPUSD is showing signs of a pullback from its selloff, possibly gearing up for a much-needed correction to the broken support around 1.2850-1.2900. Applying the Fib tool on the latest swing high and low on the daily time frame shows that this area lines up with the 61.8% Fibonacci retracement level.

The area of interest is also near the 100 SMA dynamic resistance, which might be enough to keep gains in check. The 100 SMA is below the longer-term 200 SMA, confirming that the path of least resistance is to the downside and that the selloff is likely to resume at some point.

Stochastic is still on the move up but is nearing the overbought levels, which suggests that buying pressure could be exhausted soon. Once the oscillator turns down from this region, sellers could take over and push price back to the swing low.

The British High Court ruled that the UK government would need to get the approval of parliament first before invoking Article 50. This could mean significant delays in starting the negotiation process with the EU, although this could provide lawmakers more time to iron out the details before splitting with the region. Keep in mind, though, that the government plans to appeal this decision to the supreme court next month.

Meanwhile, the BOE kept interest rates and bond purchases unchanged as expected. The statement also seemed less dovish than usual as policymakers were pleased by the recent progress in inflation, signaling that they might not need to ease again soon.

As for the US dollar, election-related uncertainties are still weighing heavily on stock markets and the currency. Data was mostly weaker than expected, with the ISM non-manufacturing PMI posting a sharper than expected drop led by a fall in its jobs index. Initial jobless claims, unit labor costs, and non-farm productivity also missed expectations.

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