Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

GBP/USD Faces Key Test This Week

By FOREX.com (Fawad Razaqzada)CurrenciesFeb 06, 2018 05:28
uk.investing.com/analysis/gbpusd-faces-key-test-this-week-200199721
GBP/USD Faces Key Test This Week
By FOREX.com (Fawad Razaqzada)   |  Feb 06, 2018 05:28
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

There are lots of major talking points for investors to consider this week. Chief among them will be the bond the markets, which sold off last week, causing yields to rise sharply. Investors will be wondering if government bonds will fall further out of favour this week and what this might mean for the equity and currency markets. Judging by what happened last week, any further weakness in bond prices could see the equity markets take another tumble.

With major central banks recently dropping their dovish stances, investors are wondering whether some of these banks are actually falling behind the curve and need to accelerate the pace of normalising their monetary policies. The European Central Bank acknowledged the strength of the eurozone economy at its most recent policy meeting and refused to talk down the euro, indicating that it is ready to tighten its belt if inflation were to accelerate. In the US, the Federal Reserve is now almost certain to raise rates in March, but the key question is how many more rate increases will follow that: two or three more?

Friday’s stronger jobs data and news that US average earnings rose at their fastest pace since 2009, certainly points to three more hikes after March if we assume that higher wages point to higher levels of inflation. But will this be enough to help support the dollar? The greenback rose sharply across the board on Friday, and was trying to extend those gains at the time of this writing on Monday. It was doing a good job against the pound in particular. The latter took a pounding ahead of the Bank of England’s policy decision later this week on news UK services PMI came in weaker than expected for the month of January. At 53.0 the PMI was more than a whole point below both expectations and the December reading of 54.2.

Sterling had enjoyed a good run of form recently on optimism over favourable Brexit conditions as the UK and EU try to come up with a deal on trade that benefits both economic regions. The growing optimism has seen investors sharply expand their bullish bets on the currency.

According to the CFTC, net long positions on the pound rose to their highest levels since 2014. Whether or not sterling’s rise was due to a soft dollar or confidence about the UK economy is questionable, but judging by the rising EUR/GBP cross, I can’t help but think the GBP/USD has been supported mainly because of the weakness in the dollar than strength in the pound. But what matter is the fact that net long positions on the pound have risen sharply and this means that the correction potential is now high. Not only is the dollar on the verge of a potential comeback, but there is the possibility that the Bank of England on Thursday might sound a lot less upbeat about the economy than the market currently expects.

Investors will also be wondering whether optimism over a soft Brexit is justified given that no deal has been reached yet and there is question marks about Theresa May’s position as UK PM. But as far as the BoE is concerned, well they might acknowledge the fact that consumer confidence is on the rise and that record numbers of people are in work. That potential acknowledgement may support the pound but perhaps only briefly, as the markets have already seen the data.

In addition to the above fundamental considerations, one can’t ignore the fact that the GBP/USD has entered deep into levels that were hit just before the Brexit vote in June 2016. The cable sold off sharply in the immediate reaction to the Brexit vote. If that sell-off was justified then, why can’t the cable go down from here again? Clearly a lot of people were wrong-footed and missed the big drop. Now that they have the opportunity to sell the cable at those levels again, will they step in? If we get a daily close below the key 1.40 level then this could be the trigger for the shorts to step back in. Resistance meanwhile comes in at 1.4150-65 area – any move above this region would probably invalidate any bearish signals that might have been generated by recent price action.

GBPUSD Daily Chart
GBPUSD Daily Chart

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Original post

GBP/USD Faces Key Test This Week
 

Related Articles

Andey Goilov
The Yen Remains Weak By Andey Goilov - Apr 25, 2022

This April turned out to be the hardest time for the Japanese Yen – the asset plummeted to its 20-year lows against the USD. On Monday 25 April, the Yen is trading at 128.55,...

GBP/USD Faces Key Test This Week

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Àbhijit Sïñgh
Àbhijit Sïñgh Nov 30, 2021 18:35
Saved. See Saved Items.
This comment has already been saved in your Saved Items
what,s update in gbp/usd
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email