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The GBP/USD exchange rate has made another push higher in the mid-week session to quote at 1.2968, a new four-month high. Analyst and technical forecaster Richard Perry of Hantec Markets tells clients he continues to favour Sterling but the FOMC event later today could complicate matters.
We hold a broadly negative dollar outlook, but there are still likely to be some retracements within this weakness.
On GBP/USD there was a key break higher above $1.2810 on Monday, in a move which continued yesterday as the bulls still saw intraday weakness as a chance to buy.
GBP/USD bulls are not ready to take profits quite yet. Technically, this move above $1.2810 has opened $1.3000 initially, but the key March high of $1.3200 is also now open.
Momentum is strong with this move, but immediate upside potential could be limited by the RSI which is stretched at over 70.
There is a near term uptrend which comes in at $1.2870 today which can now be used as a gauge for the strength of this bull run.
As the market begins to consolidate moving into the European session this morning, the hourly chart is hinting at negative divergences, but as yet no decisive signals.
A failure to continue the run higher and post another higher high above $1.2950 will begin to pose questions of the longevity of this bull run.
If the mini trend is breached, a retreat to $1.2810 initially could be seen and if broken a deeper move back towards $1.2670 again. The Fed meeting tonight will add uncertainty.
FOMC is Key Fundamental Hurdle for GBP/USD
After the elevated levels of volatility across major forex pairs and commodities (precious metals primarily) in recent sessions, we see markets relatively settled this morning.
This comes ahead of the July meeting of the Federal Reserve’s FOMC. Markets have taken a view on selling the dollar recently.
Huge increases in COVID-19 infections and deaths have driven several US states to reverse their economy re-opening procedures and reintroduce containment measures.
The impact this is expected to have on US economic underperformance in the coming months has driven yields lower and the dollar selling pressure.
How the Fed reacts today could be a significant driver of either confirming this dollar sell-off, or potentially reversing it, at least near term.
An allowance for higher inflation, and yield curve control are all potentials, but will this happen in a summer meeting?
There has been such a swathe of dollar selling (to extreme near term oversold technical levels), so there may need to be a significant dovish lean from the Fed to drive further downside potential.
Does this set up for a “sell on rumour, buy on fact” near term dollar rebound? This morning, we see little direction on yields, however, an edge of dollar selling is still present.
Yesterday’s larger than expected miss on US Consumer Confidence has not helped, neither has news overnight that even the Republicans are against their own fiscal support package.
It will be interesting to see if this dollar selling will continue in the wake of the Fed later today.