FUNDAMENTAL

There was no news to update from yesterday’s note (here: http://forex.today/forex-trade-idea/gbpusd-recap-and-weekly-outlook-may-30-2016/) as the UK and US were on holiday.

In addition to yesterday’s outlook:

– Lower tier personal consumption expenditure data is out at 13.30 (GMT +1) which is one of the factors influencing the Fed’s June decision making process.  A beat will strengthen the dollar.

–  I now note that Chinese PMI is released at 0200 (GMT +1) on 1 June.  PMI is expected to to be below 50 but a serious miss could be interpreted as a reason for the Fed to further postpone a rate rise and lead to additional dollar softness.

A June rate hike possibility is still priced in (Fedwatch gives 28.1% as of today) and the dollar will weaken if any US inflationary indicators miss – the market seems to have reacted strongly to Yellen’s comments that June was on the table – a bit too strongly perhaps which would need to be repriced.

GBP will be dominated by the Brexit theme with some uncertainty around the accuracy of polls and no decisive sentiment regarding outcome in the Referendum debate.  This may have a cooling effect on Sterling although as we have seen during the Asian session today, even modestly positive news suggesting the UK will stay in can spark spikes in GBP.

As previously noted if you compare these currencies to most others in the world they are both still very attractive.

TECHNICAL

Light trading during the holiday saw only a modest appreciation in GBPUSD based on general dollar softness, follower by a spike in pound strength in the Asian session.

The H4 Stoch is on the move from oversold territory now suggesting a leg up is in progress.  

A reversal ath the M3 pivot seems plausible as:

– it is near long term resistance

– it is between the 38.2 and 61.8 fib retracement of the last downleg

– It was tested and acted as resistance during the Asian session

These are not the strongest of reasons but broadly fit with the current fundamental narrative.  

Again bad US inflationary data and/or Pro Remain polling data could shift the pair up.

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