Today we got diverging data from the UK and US. Starting from the UK, we saw retail sales in June (0.1% m/m) miss forecast (0.2-0.3%), though the general trend is still improving. Then from the other side of the pond, US jobless claims dipped below 300K, to 284K a 10-year low. The combination of these two data points is drove GBP/USD below the 1.70 handle, and cable continues to fall sharply as we get into the 7/24 US session.
GBP/USD 1H Chart 7/24
(click to enlarge)
The 1H chart shows a market that has already gotten into a downtrend. The moving averages are in bearish alignment, and are spreading apart while price remains below them. The RSI has tagged 30, and held below 60. Today’s action merely accelerated the already developing short-term downtrend.
As the GBP/USD shows a healthy bearish trend and strong bearish momentum in the 1H chart, we should consider what this means in the higher time-frame, by looking at the daily chart:
GBP/USD Daily Chart 7/24
(click to enlarge)
As you can see in the daily chart, the GBP/USD has been bullish. The moving averages are in bullish alignment, and price is holding above them. The RSI has also been holding mostly above 40 after being able to tag 70 and above. It is now at 40 again. Therefore, the downtrend in the 1H chart is going against a strong healthy uptrend seen in the daily chart.
There is still some near-term downside risk toward the 1.6910-20 area. This is a support/resistance pivot and likely will be reinforced by both the 2014-trendline, and one that comes up from the Nov. 2013 low at 1.5855.
A break below 1.69 will likely clear the trendlines. That does not necessarily signal a bearish reversal, but will at least put the GBP/USD in a sideways mode. At that point, look for support around 1.6822, but limit the bullish outlook from there to the 1.70 handle. If the market is indeed developing bearish correction, it should start holding south of 1.70. If GBP/USD does start holding below 1.70, there is downside risk toward 1.67.
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