GBP/USD continued its multiday rally this morning, jumping over 160 pips intraday. After finding strong support at the 1.22 level last Friday as US import prices month-over-month remained static despite expectations, bullish momentum continued Monday as net foreign investment in US securities was far lower than expected. This price action was exacerbated today by positive news for the pound as the UK’s Office for National Statistics revealed higher than expected average earnings for employees, and a national unemployment rate of 3.7%, below the anticipated 3.8%. Let’s take a closer look as we discuss how to trade GBPUSD now.
In terms of fundamentals, the UK and the US currently share a few noteworthy similarities: both countries’ central banks have benchmark interest rates at approximately 1%, and the UK’s unemployment rate is a mere 0.1% greater than the US. However, the differences are many, and significant. Gross Domestic Product in the US most recently contracted by 1.4% quarter-over-quarter compared to modest GDP growth in the UK, while US inflation year-over-year declined by 0.2% while year-over-year inflation in the UK continued to sharply rise.
These numbers are arguably something of a façade for GBP/USD bulls though, as the case for the USD against the GBP is far more compelling: a) the Federal Reserve is comfortable with more hawkish moves than the Bank of England, recently resorting to a 50 basis point rate hike rather than the more palatable 25 basis point hikes; b) inflation in the US is stronger than year-over-year data implies, because month-over-month inflation is still going strong, which is relevant considering year-over-year inflation in the US is still over 1% higher than in the UK; c) trade in the UK is still marred by post-Brexit messiness, as evidenced by recent tensions with Sinn Fein, Northern Ireland’s new ruling party, over established borders and trade relations.
Any traders on the lookout for a fundamental catalyst before entering a position in GBP/USD should keep their eye on two anticipated events: Jerome Powell due to speak about US inflation at 2 pm EDT today, and the UK’s year-over-year CPI data, due tomorrow morning at 2 am EDT.
Technical indicators are currently offering rather mixed information. On one hand, price action reversed course upon finding a powerful support level at 1.22, and has now broken out to the upside of the nearly month-long steep trend line, and corresponding moving averages, that have been serving as a resistance level. However, when we look at the bigger picture, these bullish signals are put in check by the stark reality of a year-long bearish trend that has seen the pair plummet from 1.42 to 1.25. We may well see a retest of resistance at 1.26, where I personally plan on entering a short position, with the hopes of taking profit at 1.22.
According to A1 Trading’s EdgeFinder tool, retail sentiment is rather neutral, with 52% of retail traders going long on GBP/USD while 48% go short. This contrasts with the degree of institutional sentiment in the US, as the current Commitments of Traders (COT) data reflects over 76% going long on the USD, while just over 21% are going long on the GBP. This sentiment fits the current global economic climate as well, as traders will likely continue to flock to the US Dollar as a safe haven asset as recession fears linger around the globe.
Today's economic figures came out in US and Canada. GDP came in higher than expected in Canada while the price of goods purchased by consumers was lower than last month. Here are some pullback ideas for USD and CAD from GDP and PCE numbers. EdgeFinder Analysis NAS100 is a bullish reading on the EdgeFinder still. […]
This week has brought more inflation data with it regarding the USD's PCE and PMI numbers. Powell is also set to speak this Friday about monetary policy going forward. The RBNZ will also release their latest interest rate news tomorrow with expectations of an unchanged rate at 5.5%. EdgeFinder Analysis GBPUSD is a bullish bias […]
This week is a big PMI week for Europe, UK and US. Additional inflationary metrics will add to the overall sentiment of these countries' monetary policies going forward. Here are some setups for the coming week on these currencies. EdgeFinder Analysis GBPCAD is now a +7 on the EdgeFinder as we wait for CPI news […]
DISCLAIMER: All comments made by TraderNick’s Forex Group, LLC are for educational and informational purposes only. All comments should not be construed as investment advice regarding the purchase or sale of any securities or financial instrument of any kind. Please consult with your financial adviser before making an investment decision regarding any securities or financial instruments mentioned by TraderNick’s Forex Group, LLC. TraderNick’s Forex Group, LLC assumes no responsibility for your trading and investment results. All information on any of the platforms utilized by TraderNick’s Forex Group, LLC was obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. TraderNick’s Forex Group, LLC, its employees, representatives, and affiliated individuals may have a position or effect transactions in the securities and financial instruments herein and or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading of any type involves very high risk and may not be suitable for all investors. TraderNick’s Forex Group, LLC, its subsidiaries and all affiliated individuals assume no responsibility for your trading and investment result. Read our full disclaimer here
There is a significant degree of risk involved in trading securities. With respect to foreign exchange trading, there is considerable risk exposure, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you can afford to take the high risk of losing your money.