- In the middle of trading this week, the GBP/USD currency pair fell to the 1.2622 support level before stabilizing around 1.2665 at the time of writing, ahead of the release of important and influential US economic readings.
- Overall, the US dollar weakness has been a feature of the past two weeks and was well anticipated in our outlook for the next week, but we may now be at a point where US dollar selling has reached its limits.
- We note that the GBP/USD daily chart shows some increasing uncertainty, with "spinning top" candlestick patterns printed on Friday, Monday, and Tuesday. Simply, these patterns suggest that the market is looking increasingly unsure of itself.
Tuesday's spinning top was particularly notable, and the near-term rally has given way to some weakness at the time of writing. Therefore, we certainly cannot say that the rise is over yet, and some analysts are looking forward to continued progress in the coming days.
Commenting on the performance of the sterling-dollar pair, analysts at CIBC Capital Markets said, “The GBP/USD pair recorded higher closings in the last five sessions in a row. After closing above, the 50-day moving average yesterday, the early February high at 1.2772 remains in focus.”
In general, keep in mind that the end-of-February flows are likely to lead to a weaker US dollar; Credit Agricole Bank's assessment of potential forex market flows at the end of the month indicates that selling the US dollar is possible. According to analysts at Credit Agricole, the positive performance of US stock markets in February indicates a moderate sell-off in the US dollar at the end of the month. Most Forex analysts maintain the view that the US dollar will remain favored as long as the US economy continues to outperform expectations and gives the Federal Reserve a reason to avoid cutting interest rates.
Therefore, the declining US dollar trend may not gain much momentum given the continued US economic exclusion and US revenues hovering near their highest levels in 3 months. The risks of upcoming major events are likely to increase further, especially if the US Federal Reserve's preferred measure of inflation exceeds expectations. According to trading, the US Dollar Index (DXY) has found some decent support around its 200-day moving average, which currently sits at 1.03. .73 and is trading again above the 104 resistances today.
On the global central bank policy front, a rethink of US rate cut expectations has crept into the Bank of England's mainstream narrative, which could keep sterling moving in familiar territory until data emerges those challenges current policy views. Bank of England Deputy Governor Dave Ramsden echoed recent comments by Fed officials on Tuesday, saying that inflation pressures remain, precluding a move to lower rates.
In fact, analysis of volatility data shows that implied volatility in sterling is near its lowest level in thirty years!
GBPUSD Expectations and Analysis Today:
Despite the recent recovery of the US dollar, the GBP/USD currency pair has shown significant resilience, according to the performance on the daily chart above. The resistance at 1.2775 will remain crucial to govern bullish forces, and a break above it may increase expectations for a more significant upward movement towards the psychological resistance level of 1.3000, confirming a shift from the current neutral trend to an upward one. Currently, a break below the support level of 1.2600 would prompt bears to act, especially if today's US inflation reading comes in stronger than expected, supporting further tightening of the US Federal Reserve's policy. Finally, we still prefer buying the GBP/USD from every downward level.
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