The GBP/USD Pair Extends Sell-off, Targeting 1.2275 in Week Ahead
The Pound to Dollar fell to 1.2346 on Tuesday morning after positive commentary from Janet Yellen drove up the Dollar side of the pair.
Yellen sang the praises of the US job market which she recent said was "in the vicinity of full employment".
Although job seekers still faced challenges, she said the jobs market was the strongest it has been for decades.
Yellen noted the 4.6% unemployment rate - a pre-recession low - and rising wages as two positives.
Job prospects and career opportunities for graduates were, "very good", added Yellen, who was receiving an honorary doctorate from the University of Baltimore when she made the remarks.
Chart Forecasts
The GBP/USD pair has broken down through a major trendline drawn from the October lows and whilst that is a bearish sign it is not enough yet to suggest a change in the trend.
The pair has formed a three wave a-b-c correction (see chart below) which has completed its C wave at the 50-day moving average at 1.2400.
If the C-wave lows at 1.2372 are breached, that would confirm a reversal in peak and trough progression higher signaling a change of trend. leading to an extension of the move lower, targeting 1.2300.
Such a move would generate a downside target at 1.2300.
The MACD is supporting this bearish bias by crossing its signal line and thereby providing a bearish signal.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3336▲ + 0.07%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.2882 - 1.2936 |
**Independent Specialist | 1.3149 - 1.3203 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Elliot Wave Analysis Points to Possibility of Resumption of Downtrend
The recovery from the 1.1450 flash crash lows set in October has probably evolved to its full potential according to technical strategists at J P Morgan.
Basing their analysis on a type of cycle theory called Elliot Wave theory J.P. Morgan predicted in October, amidst the carnage of Brexit, that the exchange rate would recover in a corrective wave 4 to about the 1.2650-1.2800 zone.
After that they forecast a resumption of the downtrend in a final wave 5 lower – wave 5’s being the final waves in larger impulse moves in line with the longer-term trend.
This could signal a move back down towards the flash crash lows at 1.1450 is about to unfold.
As far as our own forecasts go we see the possibility of a rotation lower, with a break below the 1.2545 range lows as providing confirmation and leading to a sell-off down to the pivot and 50-day moving average at 1.2475.
For more losses below that we would want to see a clearance below 1.2390, with the next target at 1.2300.
Data in the week ahead for the Dollar
The week starts with Existing Home Sales in November, at 15.00 (GMT) on Wednesday, December 21, which is expected to show a 5.5m rise in sales.
Then Crude Oil Inventories are out at 15.30 on the same day.
Thursday, December 22, at 13.30 sees the release of Core Durable Goods Orders, which are expected to show a 0.2% rise in November.
The third estimate of GDP in the third quarter is out at 13.30 on Thursday, December 22, and is expected to show a 3.3% rise quarter-on-quarter.
Analysts are saying that it may be significant as a positive result will cement claims the US economy is powering ahead.
Analysts at financial information service Markit, said Janet Yellen was cautious about the outlook for the economy so a good GDP final estimate will help to relieve doubts about the trajectory for Fed policy.
“Fed chair Janet Yellen sought to downplay any shift to a more hawkish stance, declaring the economic outlook as “highly uncertain”.
“Consequently, analysts will be looking out for deviations in the final Q3 US GDP figure when published next Thursday.
“The second estimate signaled a 3.2% increase in GDP, up from the previously reported 2.9% and the strongest since Q2 2014,” said Markit.
Data in the week ahead for the Pound
The main release for the Pound is third quarter GDP, on Friday, December 23, which is forecast to show a 2.3% rise year-on-year and a 0.5% rise quarter-on-quarter in Q3.
