GBP/USD could be heading towards 1.30s again
Fawad Razaqzada January 18, 2017 3:57 PM
UK Prime Minister Theresa May’s comments about how the UK will leave the EU were well-received by traders yesterday as she confirmed that Parliament will debate the final Brexit deal. As a result, the GBP/USD had its best day since 2008 as it surged from around 1.20 to 1.24 in a matter of hours. But the cable has eased back somewhat sharply in the first half of today’s session despite news of stronger UK jobs and wages data and yesterday’s stronger CPI print.
At first glance, the pound’s reaction suggests that Theresa May’s comments merely triggered a short-squeeze rally rather than cause a change in the trend. This argument makes more sense when you consider the fact US President-elect Donald Trump’s inauguration is on Friday and not many people will be willing to have any bold positions on the dollar ahead of it, especially bearish bets.
However, I do believe that the pound may have carved out a bottom for the time being and thus expect to see at least some sort of consolidation at these levels. I think most of the negative news may already be baked in the price. Also, with incoming UK data pointing to higher inflation and growth rates, the impact of the Brexit vote has so far been positive if anything. Market participants may therefore find it difficult to justify initiating new sell positions on the currency at these already-depressed levels. Consequently we may see the pound regain its poise as we approach the London close.
In the slightly longer-term outlook, the cable may be able to climb back towards 1.30s again if it manages to break through the 1.2415 resistance level. Though a bit too early, the GBP/USD may have created a major double bottom reversal pattern around the psychologically-important 1.20 handle. The fact that price moved away from this level points to significant buying pressure. That being said, if we create a new low below 1.20 then this view is obviously no longer valid.
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.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.