GBPUSD Short-Term Reversal (Jan 05, 2017)

GBPUSD has been selling off recently but a reversal pattern has formed on its 1-hour time frame. Price failed in its last two attempts to break below the 1.2200 major psychological level, creating a double bottom with a neckline around 1.2380.

The 100 SMA just crossed above the longer-term 200 SMA to signal that the path of least resistance is to the upside. This suggests that an upside breakout and rally might ensue, taking the pair up by around 200 pips or the same height as the chart formation.

However, stochastic is heading south from the overbought zone to suggest that sellers are taking control of price action. In that case, it’s still possible for the neckline to keep gains in check and push for another test of the bottoms.

Economic data from the UK has been upbeat so far, with both manufacturing and construction PMI printing stronger than expected results. The services PMI is due today and analysts are expecting to see a fall from 55.2 to 54.8 to reflect a slower pace of industry expansion.

In the US, the FOMC meeting minutes revealed that policymakers were split in terms of pursuing a faster pace of rate hikes and gradually tightening monetary policy. Among the concerns on the table were Trump’s fiscal policies, inflation trends, and the consistent improvements in the labor market.

Up ahead, the attention turns to the NFP report due on Friday, as traders will see a round of leading jobs indicators from the US today. The ADP non-farm employment change report is expected to post a 171K increase in hiring, down from the earlier 216K gain. Of particular interest will be the jobs component of the ISM non-manufacturing PMI as well.

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