Is A Short Term Rally Ahead For Cable?
Blackwell Global | Oct 04, 2016 11:36PM ET
Key Points:
- RSI Oscillator enters oversold territory.
- Price action touches bottom channel constraint.
- Watch for a short term rally in the coming session.
The past month has been relatively all about the doom and gloom for the cable. The embattled pair has seemingly lurched from one bad news event to another which has seen it decline from the early September high to its current position around the 1.2850 mark. However, the last 24-hours have seen the pair reach a reversal point that could see the scales tip back to the long side…at least in the short term.
Subsequently, taking a look at the 4-hour chart is relatively illuminating as it is clear that price action has been trending within a channel post-Brexit. In fact, the past few weeks have seen the cable moving towards the bottom channel constraint whilst the 50 and 100 EMA’s have also trended lower.
However, price action is now residing firmly at the bottom of the channel and the RSI Oscillator has just moved into oversold territory on the 4-hour timeframe. Additionally, an ABCD pattern has formed with what appears the have been the “C” leg just completed. Subsequently, there is plenty of scope for a corrective move higher towards the 1.3250 mark over the next few sessions. Having said that, the long term bearish trend still remains in place and a return to the downside is every present as long as resistance at 1.3120 holds.
The one unknown variable is how markets will react to the ongoing turmoil around a potential Deutsche Bank (DE:DBKGn) collapse. Early this week has seen plenty of speculation that the bank is in serious trouble and facing insolvency without a bailout from the German government. Subsequently, both equity and currency markets have been impacted and this may increase as the week goes on and information becomes available. Subsequently, watch for any news surrounding the issue as it could impact the cable.
Ultimately, the short term trend is likely to be upward in nature but any moves are likely to be capped by resistance at 1.3120 and 1.3250 in extension. Subsequently, there is likely to be some tradable moves in the coming days but watch for any volatility around a Deutsche Bank bailout or additional Brexit talk.
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