Two trades to watch: GBP/USD, Dax

Fiona Cincotta February 22, 2021 7:54 AM

GBP/USD trades above 1.40 on lockdown easing optimism. Dax slips lower ahead of IFO business sentiment data.

Charts (1)

GBP/USD above 1.40 on lockdown easing optimism

GBP/USD trades around its highest level in 3 years as investors cheers the rapid vaccine rollout porogramme.

All eyes are on PM Boris Johnson who is set to lay out the path to reopening the UK with schools set to open 8th March.

Rising US 10 treasury yields are lifting USD.

US stimulus update will also be in focus amid quiet economic calendar.

Where next for GBP/USD?

GBP/USD has retreated slightly from the fresh almost 3 year high of 1.4052 reached overnight, pulling the RSI away from overbought territory on the 4 hour chart.

Whilst the pair remains within the ascending channel pattern the outlook is bullish and is likely to keep the upside momentum. 

The upper band of the channel is capped at 1.4060 which offers immediate resistance whilst bulls look towards 1.41.

Meanwhile, 1.3895 is the lower band of the channel which offers support. It would take a move below 1.3820 to negate this latest uptrend.

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DAX on the back foot ahead of IFO business sentiment

European markets are opening the week on the back foot amid growing concerns over a rapid return to growth, reflating prices and higher yislds.

German IFO business sentiment data is expected to show an improvement in sentiment, echoing similar data from ZEW.

IFO business climate expected 90.5 versus 90.1 previously.

Where next for the Dax?

After a firm rally at the start of February, the DAX formed a double top pattern at 14184 in the second week of February. The reversal pattern saw the Dax sell off, however it failed to meaningfully break through support at 13900.

Long wicks below this level indicate some weakness in the bearish moment. That said the Dax trades below its 50 & 20 sma. The 20 sma also crossed below the 50 sma in a bearish signal and the RSI is supportive of further losses.

A convincing move below 13900 is needed to test support at 13850 last week’s low. A break through this level could see bearish moment gain traction with a deeper selloff to 13590.

Any recovery in the price would need to overcome the 14000 the 50 sma and round number before he bulls look back towards retesting the all time high of 14184. 

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