GBP/USD a 'Sell' into Intraday Strength with Hantec Markets

Dollar outlook

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The GBP/USD exchange rate has recovered back to 1.2931 ahead of the weekend, but strength should be viewed as an opportunity to sell says analyst and technical forecaster Richard Perry of Hantec Market.

As a three week rally on GBP/USD has moved into reverse, the pressure has turned back towards a test of 1.2845 support.

It is notable that intraday volatility on GBP/USD has picked up this week, with larger daily ranges.

The Average True Range of 117 pips has been exceeded in each of the past three sessions now (UK/EU Brexit trade deal negotiations are clearly weighing on sentiment).

GBP/USD charts

Although newsflow is key, we favour selling into intraday strength for pressure on 1.2845.

A closing breach would increase downside momentum for a test of 1.2670. Near term rallies into 1.3000/1.3080 continue to struggle. It is also worth noting now the support of a five month uptrend (which links the lows going back to May), which comes in today at 1.2780.

This may be more of a factor next week in reflecting the longer term outlook, especially once the market reacts to what is likely to be an ongoing drag of the EU/UK negotiations.

The risk negative bias that has ushered flow back towards safe haven assets in recent sessions is still present as we come towards the end of another frustrating week for major markets.

There is a distinct lack of trend or conviction right now through forex and commodities.

It is difficult for traders to take a view amid the frustrating lack of progress in US fiscal support negotiations and deadlock over a UK/EU trade deal.

In Washington, the sense is that fiscal support is becoming (if it is not already) a political football kicked around as who can use it for their advantage moving into the Presidential election.

Agreement is ever more unlikely and this is weighing on broad market sentiment. (For a more detailed look at the Dollar and the election, Pound Sterling Live's latest report on the matter is now ready for download).

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The EU/UK negotiations are also extremely knife edge, with game theory playing out in a classic sense. They are close enough to continue talking, but the lack of real traction makes it likely that this will drag on for some weeks yet.

So with the impact on major markets, we see a drift towards safety, with the dollar and yen benefitting at the expense of higher risk commodity currencies such as Aussie and Kiwi.

In the US a rebound in Treasury yields helped equities rally into the close, but this traction looks to be waning again today. As yields tick back lower again, it is setting up for another frustrating day for the bulls.

It is a US focused day on the economic calendar to end the week. However, first up is the final Eurozone inflation reading for September at 1000BST. Headline Eurozone HICP is expected to be confirmed at -0.3% (-0.3% flash September, down from -0.2% final August).

The core Eurozone HICP is expected to also be confirmed at +0.2% (+0.2% flash September, +0.4% final August).

Into the US session, the main focus is US Retail Sales at 1330BST which is expected to show core ex-autos sales gaining by +0.5% in the month of September (after growth of +0.7% in August). US Industrial Production is at 1415BST and is expected to improve by +0.5% on the month in September (after +0.4% in August).

Capacity Utilization is expected to also improve to 71.9% (from 71.4% in August). The preliminary look at October’s Michigan Sentiment is at 1500BST and is expected to tick slightly higher to 80.5 (from 80.4 in September).