British Pound: Week Ahead Against the Euro, US Dollar and Commodity Currencies

The uncertainty surrounding the 2016 EU referendum has resolved itself into a downside bias for the UK currency and those watching markets should be aware that the exchange rate is susceptible to poll results either way until the referendum.

Overshadowed by Brexit, economic news does not play the part it once did, although, it retains an important background effect.

We saw through the start of March that the pound largely ignored the PMI series and advanced, despite overwhelming signs that UK economic growth is slowing somewhat.

However, if markets believe they have absorbed Brexit risks then data will once again start moving the currency.

Industrial Production is to be released on on Wednesday 9th, markets are forecasting a reading of 0.5% month-on-month.

Manufacturing Production is forecast to have risen to 0.2%, a recovery from the previous reading of -0.2%.

Any misses here will certainly cap the pound but upside surprises will likely have a more pronounced positive impact owing to how negatively aligned against the pound markets are.

On Friday the 11th the Trade Balance is schedule for publication, with the visible Trade Balance showing a -2.709bn deficit in January.

The Downtrend in the Pound to Euro Exchange Rate Pauses

The medium-term down-trend has paused at support from the 50-month moving average and the 200-week moving average at 1.2620 and 1.2640 respectively.

Moving Averages are, as hinted at in the name, the average price traded at over the timeframe in question and they often provide very solid support or resistance to price moves, which means trends are often reversed at MA’s.

The pair then bounced and clearly broken out of its down-sloping channel, eventually reaching its target generated by the breakout from the channel at 1.2962 and then the key 1.3000 psychological level.

It has now pulled back in a small three-wave a-b-c correction, visible on the 4-hr chart, and found support at a minor trend-line.

There is a possibility the pair could resume its mini-up-trend, however that would require a break above the current 1.3002 highs.

It would also require a break above the 50-day MA at 1.3010.

Therefore, a move above the 1.3100 level would, probably provide stronger confirmation of a continuation up to the next target at the R1 monthly pivot level at 1.3184.

Pivot Levels are used by professional traders to indicate points at which prices will encounter strong support or resistance – much like MA’s.

A resumption of the down-trend is also possible although the move down from the head and shoulders topping pattern on the weekly chart, reached its target and the big moving averages in the 1.26s are providing solid support.

A head and shoulders pattern forms at the end of an up-trend when the pair moves up and peaks, pulls back down and then movies up again and peaks at a higher level, before once gain pulling back down to roughly the same level as the previous trough and then moving higher to peak at the same level as the first peak.

This provides the three peaks which form the shoulder and the head.

After that prices are expected to move lower very rapidly, with confirmation coming from a break below the trough lows – also known as the neckline -and a minimum target at the 61.8% extrapolation of the head lower.  

Pound to Dollar Exchange Rate Outlook: A Reversal?

There are tentative signs of a reversal in GBP/USD, although it is too early to say for certain.

This week’s strong performance by sterling means it has formed a two-bar reversal pattern on the weekly chart.

Despite not being a ‘5-star’ grade set-up because the volume is muted and the bars are not quite the same length, it is nevertheless probably a 4-star pattern, given its placement at the end of a protracted down-trend. 

We are also within a support zone supplied by major lows on both 2008 and 2010 lending further credence to a potential reversal unfolding.

A break above the 1.4534 highs would provide confirmation of a reversal, with an initial target at a major trend-line at 1.4900.  

Pound to Australian Dollar Exchange Rate Outlook

The GBP/AUD pair has accelerated its decline breaking down below the lower boundary of its descending channel.

The next target on the radar is the 100% extension of the channel lower, at roughly 1.9000, which is also just above support from the S1 Monthly Pivot at 1.8945.

The pair has already broken below the 1.9250 lows helping to confirm an extension down to the key 1.9000 psychological level.

Downside momentum has slowed, which is a warning sign the pair could be nearing a bottom, according to the old wall street saying: “never short a dull market.”

There is a small chance the breakout from the descending channel could mark an exhaustion point for the trend, however, given no strong indications yet of a recovery, it is safe to assume bears are still in control.

For those willing to assume some risk, a break below the 1.9090 level would probably confirm a continuation down to 1.9000.

GBP to NZD Outlook

The GBP/NZD pair has been falling in a descending channel since rolling over after reaching a peak of 2.5209 in August 2015.

The down-trend is dominant and forecast to continue.

There is a major support and resistance level at 2.0972 which provides an obstacle to further down-side pressure.

Nevertheless, a re-break below the current 2.0672 lows would probably confirm a resumption of the down-trend towards the next target for the pair at the S1 Monthly Pivot at roughly 2.0340.

GBP to CAD Outlook

The 50-day MA has now crossed the 200-day MA forming what is called a ‘Death Cross’, which is a very bearish medium term signal.  

The short-term down-trend remains intact and the bounce over the last few days has now reach a significant resistance level at 1.8980.

This was the minimum target from the double-top reversal pattern at the highs.

Double tops are patterns which occur at the end of bull trends and mark reversals of the trend.

They are formed when the market peaks, falls back and then peaks again at a similar level to the first peak – painting on the chart what is essentially a ‘double top’.

The price is then expected to fall steeply to a target at the 100% extension of the height of the pattern lower.

The neckline is at the low of the intervening trough of the pattern; it must be breached to confirm more downside and in order to validate the pattern.

The minimum target is at the 61.8% extrapolation- rather than the 100% - due to the significant properties the 61.8% ratio discovered by the Italian Mathematician Fibonacci.

Since the minimum target on GBP/CAD has been met (at 1.8977), it lessens the chance of more downside, and increases the chances of either a consolidation or recovery.

The pair may have fulfilled the 61.8% minimum target from the double top, but it still has not met the 100% target at 1.8520ish, and there is a still a candle-lit possibility of a move down to 100%.

So for intrepid bears willing to front some risk, a break below the 1.8650 level would confirm a move down to 1.8520 at the 100% target, especially as it will be complemented by  the Death Cross.

Pound to Rand Exchange Rate Forecast

There is very little change from the previous analysis on March 3, except a change in the confirmation break level.

From a technical perspective, the pair has fallen in a broadly three wave pattern from off the January highs.

It recovered after basing on the 24th of February at 21.2079.

The three up day’s which followed were a positive sign for the pair and the 22.68 highs of February 26 will on balance probably be superseded eventually.

This recovery has run into substantial resistance at the monthly pivot at 22.3562.

There is formidable resistance in the 22s from other levels, including the old neckline of a head and shoulders topping pattern and the 50-day MA at roughly 23.0000.

This is likely to make any further gains difficult for the pair.

The 200-day MA stands in the way of a continuation of the fledgling down-trend.

The S1 Monthly Pivot at 20.9542 is also in the way of further losses.

A clear break below 20.8000 would probably confirm a move down to a target at the psychologically significant 20.0000 mark.

Nevertheless, increasingly bullish momentum, as indicated by the rising MACD indicator in the bottom pane, seems to be pointing to a higher probability of more upside instead.

PS: Copy signals, Trade and Earn on Forex4you - https://www.share4you.com/en/?affid=0fd9105