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The GBP/USD exchange rate is seen trading under pressure once more and is down 0.50% on Tuesday at 1.2759. Analyst and technical forecaster Richard Perry of Hantec Markets gives the next potential targets the market might focus on.
The technical rally has been faltering around 1.3000 in recent days as the overhead supply between 1.2980/1.3050 has been a barrier to recovery.
Yesterday’s sharp retreat once more reflects the lost control of the GBP/USD bulls and the market is on the brink of turning decisively corrective now.
The support that formed at 1.2760 is key because if there is a closing breach, it would signal 1.3005 being a key lower high as part of a new technical downtrend.
It would open 1.2650 initially as the next key test, being the bottom of the old breakout levels of the old April to July ceiling.
A failure of this support would open a much deeper correction, towards 1.2480 and possibly 1.2250. So how the market resolves this little 1.2760/1.3005 range will be key. Today’s early slip lower threatens the support.
Looking at daily momentum indicators turning increasingly negative (RSI failing at 50, Stochastics bear cross and MACD falling under neutral) the risk is certainly to the downside now.
A closing break confirms. The hourly chart shows a decisive move above 1.2860 is needed to improve now.
There has been a dramatic shift in sentiment early this week as risk appetite has taken a huge step back. Markets are reacting to the perception that Europe is having to deal with significant second wave COVID infections with renewed restrictions.
This comes at a time where Congress continues to drag its feet over a US fiscal support package.
Also we can add into this, a big money laundering scandal hitting the banking sector, just for good measure. This all adds up to a shift into safe haven forex, and equities being sold off sharply. The dollar tends to benefit in times of elevated market fear, and this is no exception.
The rebound in the Dollar Index is now testing the key resistance band 93.50/94.00, something that equates to the support around $1.17 on EUR/USD. With dollar strength and concerns over the demand outlook hit the commodities complex with oil and silver sharply lower.
What was also interesting was a return to strong selling on gold, apparently not a safe haven of choice right now. Back in March when equities were selling hard, gold was also sold amidst portfolio liquidation. This is something to keep an eye on in the coming days if equities continue to decline.
The next few days will also be focused on Fed chair Powell, who testifies before Congress on.