Directionless mode extends but Brexit fears keep the downside vulnerable
Cable holds in directionless mode for the third straight day, after Thursday’s post-BoE volatile trading failed to generate firmer direction signal.
Sterling was initially lower and hit new 2 ½ week low at 1.2854, following 9-0 vote to keep rates unchanged and the biggest cut to growth view since Brexit vote in 2016.
Uncertainty over Brexit keeps pound under pressure as PM May tries to get more concessions from the EU to try to avoid disorderly Brexit after her divorce plan was voted down by the parliament last month.
Despite very negative environment, optimistic tone from BoE chief Carney, who pointed to possible gradual rate increases in case the Britain reaches divorce deal, offered fresh boost to sterling to bounce from dangerous territory, after initial weakness cracked key 1.29 support zone (Fibo 38.2% of 1.2397/1.3217 / 100SMA).
Recovery action was capped by 20SMA (currently at 1.2997) keeping overall near-term bias in bearish mode, as momentum is weakening and multiple MA bear-crosses (5/200; 5/20, with 10SMA attempting to form death-cross with 200SMA) continue to weigh.
The pair is on track for the second weekly bearish close that adds to negative signals.
However, the downside attempts remain limited as strong 1.29 support zone was reinforced by formation of 30/100SMA bull-cross and north-heading slow stochastic which reversed from oversold territory.
Brexit story remains pound’s key driver and traders will be looking for signals to establish in fresh direction.
With price holding between 100 and 20SMA’s, violation of either side would generate initial direction signal.
Sustained break below pivotal 1.29 zone would risk bearish acceleration towards next strong supports at 1.2807 (55SMA / 50% retracement) and 1.2786 (daily cloud top).
Conversely, lift above 20SMA would sideline downside risk, but break and close above 200SMA (1.3032) is needed to confirm reversal.
Res: 1.2959; 1.2997; 1.3032; 1.3051
Sup: 1.2904; 1.2854; 1.2830; 1.2807