The GBP/USD exchange rate is looking to record its fifth successive day of gains and is quoted at 1.2655 at the time of writing. Technical forecaster and analyst Richard Perry of Hantec Markets says any weakness should be seen as an opportunity to buy.
The near term outlook for Sterling has improved considerably in the past week. On GBP/USD, we have seen the sterling bulls turning a corrective three week downtrend, into a base pattern on a move above $1.2540.
This base took on a decisive formation yesterday with another strong positive candlestick (the sixth positive close in the past seven sessions).
Closing above $1.2540 implies a move now to test the resistance of the June high at $1.2810 and is a move backed by improving daily momentum.
Stochastics are rising with upside potential into the 80s, whilst RSI is into the 60s this morning. A bull cross on MACD lines adds to conviction (although with GBP/USD being in a three month trading range, this move lends less influence).
Resistance at $1.2685 is important, but the key test is how the bulls react around the barrier of the seven month downtrend (which is at $1.2700 today).
How the bulls react around this resistance will be a good gauge of their intent. We look to buy into weakness, with the hourly chart showing $1.2600 being the initial support whilst the neckline of the base at $1.2540 is growing in importance now.
This is added to by a one week uptrend line support also at $1.2540 today. The bulls are in control of the medium term range now whilst the support at $1.2435 remains intact.
Are Markets Positioning for a Weaker Dollar?
Wall Street bounced back yesterday to see risk appetite swing back to a more positive skew.
There has been little to really drive this move, with surging mega-cap tech stocks certainly playing a role.
However, it is also notable that the extended risk positive bias of assets are playing into this move.
Although Treasury yields are all but anchored now (as markets price for some sort of yield curve control), the dollar is suffering, as the Dollar Index falls to four week lows this morning.
There has been some uncertainty over the outlook of the dollar in recent weeks, but traders seem to be increasingly positioning for a structural dollar weakening.
It is interesting that amidst the worsening of newsflow over COVID-19 infections in the US, the dollar seems to be the main casualty here.
It would suggest that the view is that as Q3 develops, the US economic recovery from lockdown will be scaled back, at least relative to other major economies.
China seems to be a beneficiary here as the yuan has strengthened below 7.00 to the dollar for the first time in almost four months.
China inflation was mildly encouraging overnight, with the Producers Prices Index inflation coming in slightly higher than expected and has helped the yuan strengthening.
Also we see traction beginning to come from the euro too, The dollar weakness has also helped to propel gold through $1800 for the first time since 2011.
This dollar negative bias is once more evident this morning, with USD underperforming across major currency pairs. Equities are edging positive (even though US futures are ticking slightly lower) as an edge of positive risk appetite builds.