GBP / USD Bulls Enter Following Massive Selling
- GBP / USD bulls hit the table as price stagnates on profit taking.
- Bears will hide according to the US dollar smile theory.
- The BoE will be crucial to the path of the pound and markets see the risk of covid after Freedom Day.
GBP / USD is currently trading the lows set at the start of the New York session at 1.3571 and has since removed the 1.36 figure to trade near 1.3620, down 0.38%.
Price fell again from a high of 1.3672 early in the European session, extending the start of the week’s covid fear-induced sell-off.
Cable is now recovering from a five-month low against the dollar and a five-week low against the euro, levels reached due to broad demand for the safe-haven dollar amid rising global coronavirus infections.
Ironically, England lifted all social restrictions related to COVID-19 on Monday, in what local media dubbed ‘Freedom Day’, despite an increase in infections largely caused by the highly contagious Delta variant virus.
Risks are tamed a bit on Tuesday, but fears persist as COVID-19 restrictions are re-implemented in European countries after recent spikes.
As a result, the DXY is up for the fourth day in a row and it traded at the highest level since April 5 near 93.04.
Bulls aim for March 31 high near 93.437.
The euro remains heavy ahead of the ECB’s decision on Thursday, which is also playing into the hands of the US dollar.
The dollar benefits from strong US data as well as risk-free activity that supports the dollar smile theory.
Rising virus counts and political blunders in the UK cause the pound to trade at new lows for this cycle Breakout below $ 1.3755 yesterday sets up a potential test of the January low near $ 1.3450. Before that, there is the February low near $ 1.3565, ” analysts at Brown Brothers Harriman argued.
BoE eyeing and will be key to GBP
Meanwhile, with a focus on the Bank of England, the next BOE meeting is August 5 and an accommodating position is expected.
BBH analysts said: “Policymakers at the Bank of England are going through a debate similar to that at the Fed.”
“Last week’s Consumer Price Index data was higher than expected, but officials, for the most part, continue to view this as a transient peak.”
MPC external member Mann warned that ‘the recovery from Covid is more fragile than it appears’ and therefore the bank should ‘not be premature in terms of tightening’.
Another MPC member, Haskel, said ‘In the short term, the risk of a preventative monetary tightening reducing the recovery continues to outweigh the risk of a temporary period of above target inflation. and added that, ‘for the foreseeable future, in my opinion, a strict policy is not the right policy.
Analysts explained that this contrasts with Deputy Governor Ramsden and MPC member Saunders, both of whom have hinted that they are in favor of removing the £ 50 billion from QE.
“It should be noted that the lead falcon Haldane has left the BOE and the debate will therefore be lively for the eight remaining members of the MPC. “
GBP / USD technical analysis
According to the analysis of the day before:
The M formation is compelling as the price hits the support.
On a test of a lower low, there could be a return to the upside to test previous daily lows and the influence of the 38.2% Fibonacci retracement level. ”
… the correction was assumed too early, but the decline continued and the M formation is still a valid pattern.
Live Market Update
The market is stagnating on the downside and a correction to test at least the 38.2% Fibonacci retracement level at 1.37 the digit, or even the average 50% reversion of this daily bearish impulse would be expected.
The 50% average reversion level, nea1.3735 is particularly compelling given the confluence of previous July lows and the expected resistance structure.