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The GBP/USD exchange rate saw a multi-day rally come to a screeching halt on Thursday with the pair trading back at 1.2589 ahead of the weekend. Analyst and technical forecaster Richard Perry of Hantec Markets says defining the medium term trading range will be key in understanding where the pair might be headed next.
It is an important moment for the GBP/USD bulls. We have discussed recently the importance of the approaching seven month downtrend (which comes in today at $1.2695).
Yesterday’s failure at $1.2670 (also a shade under an old mid-June lower high of $1.2685) will leave GBP/USD bulls concerned that this is another failed rally.
The move looks to at least be perpetuating the medium term trading range. There is support of an eight day uptrend being tested this morning at $1.2580.
A closing breach would disappoint the bulls, but the more important reaction would be around the neckline of what is a near term base pattern a t$1.2540.
Given how GBP/USD is still in a medium term range (between $1.2075/$1.2810), closing under $1.2540 would at least neutralise the outlook within the range. Under $1.2435 would then turn the market bearish within the range.
Momentum is beginning to react too, with Stochastics now threatening a “bear cross” which would be just the third in three months and the previous two have all been the precursor to a decisive swing lower once more within the range.
Dollar Recovers as Investor Sentiment Capitulates
The threadbare economic calendar throughout this week has weighed on markets.
Traders have been looking elsewhere for a steer on sentiment, and they are finding a string of negatives to weigh on the mind.
US COVID-19 infection rates are rising at record levels, now growing by 60,000 per day.
President Trump may try to spin this by talking about improved testing, but increasing numbers of daily deaths is the true barometer (now rising at the highest rate since early June).
With several of the major southern states re-engaging lockdown procedures (and also New York too), this will hit the economic data for July.
Markets are beginning to respond to this. Market breadth on equities does not look great right now. The mega-cap tech stocks look good still, but delving deeper into the old economy stocks, the outlook for US equities becomes more concerning.
Treasury yields are reacting lower, with a “bull flattening” move on the yield curve. Yield spreads are around 10 week lows on the curve and this is risk negative.
This negative risk bias is now impacting through forex markets where the dollar (still playing as a safe haven) is benefitting along with he Japanese yen.
Equities are lower, and oil (playing on the reduced demand fears) is also beginning to slide.
There is little once more on the economic calendar to change the narrative today, so unless there is some positive news out there, sentiment could struggle into the end of the week.