GBP/USD Upward Trending Channel:

After hitting lows last seen since 2010 on the back of US dollar momentum over the last 6-months, the GBPUSD technical rebound presently underway since April 13th remains intact. Weaker US data combined with a stable outlook for the UK has contributed to the most recent gains in the GBPUSD pair, however, there are numerous items that could see traders shift sentiment towards the outlook. The move higher in the pair comes at a time when there is a strong possibility of a monetary policy divergence from the Federal Reserve versus the Bank of England. The Bank of England’s Monetary Policy Committee Meeting Minutes due later this week are expected to show that all voting members opted to keep policies unchanged.  With inflation printing at a 0.00% annualized pace and growing fears of contagion from the Euro Area, the Bank of England has decided to maintain rates and hold policy, awaiting stronger verification of solid economic expansion. Across the Atlantic, the Federal Reserve is planning to raise rates in 2015, setting the stage for further gains in the dollar despite the temporary respite in upward momentum.

The persistent softness in US fundamental data over the past several weeks highlights the uphill battle facing the Federal Reserve as it attempts to prepare financial markets for higher interest rates. There remains much debate over the timeline and pace of increases as macroeconomic data remains highly unsupportive of a rate hike at present. The upward trending equidistant channel formation in the GBPUSD pair has a predominantly bullish bias, however, upcoming housing and durable goods data from the United States could quickly shift the momentum if the data points manage to exceed expectations.  The prevailing strategy considering the channel is to initiate long positions at the lower channel line to be closed at the upper channel line. Any move beyond the upper and lower bounds of the channel should be treated as a breakout trade and possible reversal in the pair.

USDCHF Downward Trending Channel

After abandoning the hard currency peg in EURCHF at 1.2000, the Swiss National Bank made the decision to change gears, targeting a softer peg in the 1.0500 to 1.1000 range in order to protect the domestic economy from safety flows that were driving the Franc higher. The recent strength in the Euro and weakness in the US dollar has seen shifting tides for the Franc as it sees increased demand despite the negative interest rate policies instituted by the Central Bank. On the opposite side, expectations of a rate hike from the United States saw the pair rise as optimism of higher rates saw dollar demand explode to the upside. However, the weakness in near-term fundamental data from the United States considering the slack in the housing and retail sectors could see the ambitious policy measures postponed indefinitely. 

From a technical point of view, although the most recent lows in the pair seen last week could be indicative of a triple-bottom in the USDCHF currency pair when looking at a chart of the last month, near-term risks remain skewed to the downside. Upcoming new home sales and existing home sales could very well confirm that the momentum in the housing economy has officially reversed lower. The downward trending equidistant channel formation in USDCHF has a predominantly bearish bias however there is the strong possibility of a breakout trade occurring should the data surprise investors. The ideal strategy is short positions at the upper channel line with the target the lower channel line. Any sharp movement outside the channel lines should be treated as a breakout trade which is likely to be accompanied by increased price momentum in the direction of the breakout.

Silver Head & Shoulders Bearish Pattern

Silver prices have been highly reactive to movements in the US dollar and the outlook for interest rates as Federal Reserve voting members openly discuss plans to hike rates in 2015. In general, precious metals have a very strong inverse correlation with the dollar. Investors typically like to hold precious metals to hedge against losses in fiat currency or protect against the erosion of wealth through inflation owing to precious metals historical use as a store of value.  Many of the extreme monetary policy measures of the last few years were expected to stoke inflation with easing keeping the dollar weak against peers as the Federal Reserve feverishly tried to re-inflate the US economy. Now that the monetary policy stimulus training wheels have been removed, not only has annualized inflation double-dipped into negative territory, the dollar has soared against peers. The main reasons for holding precious metals such as silver listed above run contrary to the data despite the uncertainty in financial markets.

The head and shoulders technical pattern presently setting up in silver highlights this point, with the precious metals prominently displaying a bearish bias. The right shoulder of the pattern continues to form, bound by resistance at the top of the shoulder at $17.320. The neckline at $15.510 is the major support level to watch on downside and the next major target for prices.  If silver prices break below the key technical level, the next stop on a longer-term basis is support at $14.650. A move above prevailing resistance at $17.320 would signal that the pattern is not hold and would likely be the result of the Federal Reserve postponing its rate hike or a sharp decline in the dollar.  The Federal Reserve has maintained the position that it intends to remain “data dependent” in its decision-making process, meaning that any continued weakness in macroeconomic data will broadly impact the timeline for more hawkish interest rate policies.