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The GBP/USD exchange rate has lost its upward momentum but nevertheless holds above a key 1.30 support level, leading analyst and technical forecaster Richard Perry of Hantec Markets to view current price action as being corrective.
The dollar bulls have threatened to pull GBP/USD back in the past couple of sessions, but as yet they cannot find a stable foot hold for traction in this market.
Posting two successive negative closes is a warning, as is the apparent bull failure on Friday (arguable shooting star).
However, initial testing lower could not be sustained yesterday and the support of a sharp two week uptrend of the recovery has held.
Daily momentum signals are drifting back slightly and for now this is more of a consolidation than a building correction.
However, the hourly chart signals are beginning to look slightly more corrective.
Hourly RSI falling over under 60, hourly MACD also faltering around neutral, and an hourly Stochastics bear cross this morning.
Under the $1.3170 rally high there is resistance at $1.3110 and if this is not broken then a phase of lower highs could be building.
The key support to watch is at $1.3000, as a breach would generate a new negative trending outlook and a deeper correction would develop.
Risk appetite got a welcome boost yesterday and this has filtered into today’s session.
The stronger than expected US ISM Manufacturing data for July helped to improve sentiment across the risk spectrum yesterday, buoyed by the better than expected new orders component.
This allowed a better breadth of rally on Wall Street, pulling a rally on the oil price and pulling trades away from safe havens such as the yen and the dollar.
The move has also enabled a mild “bear steepening” of the US yield curve (longer dated yields rising faster than shorter dated yields, something which tends to be linked with more positive risk environment).
The question is whether this momentum can be built upon now. Progress is being made in the talks in Congress over how to replace the emergency employment support in the US.
However, there is nothing concrete yet. Also, amidst the positivity in the ISM data, the employment component deteriorated and will add caution for the Non-farm Payrolls data later in the week. Taking a step back, it seems that these moves are generating a consolidation.
The huge dollar selling pressure of recent weeks may have abated, but it is not reversing.
It is still likely that agreement in Congress would be a key driver of the next decisive move.