GBP/USD Pulls Back From Fresh Monthly High; Relief Rally Still Intact

DailyFX.com -

Talking Points:

- GBP/USD Eyes Top of Ascending Channel Formationas Relief Rally Remains Intact.

- EUR/USD Capped by 1.0800; Bear-Flag Formation in Focus Ahead of ECB Meeting.

GBP/USD Daily

Chart - Created Using Trading View

• The top of the ascending channel comes into focus for GBP/USD as the exchange rate pushes to fresh monthly highs throughout the first full-week of December, and the recent development in the Relative Strength Index (RSI) reinforces a near-term bullish outlook for the pair as the oscillator breaks out of the bearish formation carried over from May; will keep a close eye on the momentum indicator as it approaches overbought territory, with a break above 70 raising the risk for a larger recovery in Cable.

• Even though Bank of England (BoE) Governor Mark Carney warns that the U.K. has faced it first ‘lost decade’ of growth in 150 years, it seems as though the Monetary Policy Committee (MPC) is in no rush to further embark on its easing-cycle as the central bank head continues to warn ‘there are limits, however, to the extent to which above-target inflation can be tolerated;’ with U.K. Industrial Production & Manufacturing on the docket, a positive development may spark a bullish reaction in the British Pound as easing concerns of a ‘hard Brexit’ dampens bets for additional monetary support.

• String of closing prices above 1.2630 (38.2% expansion) keeps the topside targets in focus, with the next region of interest coming in around 1.2860 (61.8% retracement) followed the former-support zone around 1.2920 (100% expansion) to 1.2950 (23.6% expansion).

EUR/USD Daily

Chart - Created Using Trading View

• EUR/USD pares the sharp rebound following the Italian Constitutional Referendum, with the pair struggling to clear the Fibonacci overlap around 1.0780 (100% expansion) to 1.0800 (23.6% retracement); broader outlook remains tilted to the downside as the euro-dollar appears to be trading within the confines of a bear-flag formation, with the single-currency at risk of facing increased volatility over the coming days as market attention turns to the European Central Bank’s (ECB) last 2016 interest rate decision on December 8.

• Even though the ECB is widely expected to carry the zero-interest rate policy (ZIRP) in 2017, President Mario Draghi and Co. may extended the deadline for its quantitative easing (QE) program and adjust the guidelines for the non-standard measure in an effort to achieve its one and only mandate for price stability; may see the Euro continue to take cues from risk trends especially as the Federal Open Market Committee (FOMC) appears to be on course to implement a December rate-hike.

• The long-term bearish trend may reassert itself amid the lack of momentum to break/close above the Fibonacci overlap around 1.0780 (100% expansion) to 1.0800 (23.6% retracement), and EUR/USD may slip back towards the 1.0500 (50% expansion) as the near-term rebound in the exchange rate appears to be getting exhausted.

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--- Written by David Song, Currency Analyst

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