News | Forex Optimum



GBP/USD fails to break above 200DMA in 1.3730s despite solid UK GDP figures, back to consolidation ahead of US data

  • GBP/USD has failed to push above its 200DMA on Friday despite solid UK GDP and Industrial Production data.
  • The now quite overbought pair has since dropped back to the 1.3710 area, where it consolidates ahead of US data.

A much stronger than expected UK GDP growth rate in November and a promising rebound in manufacturing activity in the same month has not been enough to propel GBP/USD above its 200-day moving average at 1.3737. Indeed, having failed to break above the key level, the pair has since fallen back into the 1.3710s, though is still trading with very modest on-the-day gains of about 0.1%. Perhaps it is the fact that the UK GDP growth is expected to go into reverse in December and January amid the disruptive impact of the rapid spread of Omicron that has prevented sterling from benefitting from Friday’s strong data. Perhaps it is the fact that, with the pair trading higher by about 1.0% on the week and on course for a fourth consecutive week of gains, during which time it has rallied more than 4.0% from under 1.3200, GBP/USD looks overbought that is holding it back from further gains.

Indeed, the pair’s 14-day Relative Strength Index has been above the 70.00 level that signifies overbought conditions now for the past three sessions. This may be encouraging sterling bulls to book profit rather than chasing GBP/USD higher, even if markets are reasonably confident that, amid optimism, the impact from Omicron will be shortlived and following recent strong jobs, hot inflation and better than expected GDP data, the BoE will hike rates again in February. Whilst expectations for further BoE tightening in the coming weeks may not be enough to push cable to even loftier than current levels, it may be enough to keep the pair supported upon any retracement back to say the 1.3600 level.

Of course, much will depend on the trajectory of the dollar. Analysts are undecided about the causes of the recent sharp deterioration in USD sentiment that has sent the DXY to two-month lows under 95.00. Some have argued that, with the hawkishness of the Fed now very much priced in, focus has turned to whether this will ultimately be a policy mistake that slows down the economy, thus halting the Fed’s plans to continue tightening in 2023 and beyond. The fact that money markets are pricing a terminal rate that is well below the Fed’s guided 2.5% suggests markets are not as bullish on the US economy’s long-term prospects as the Fed and traders are saying that this has been weighing on the dollar.

Others have argued that recent weakness is purely positioning based, noting that, for example, speculator positioning in recent weeks has been as heavily long USDs at any point over the last two years. Once the “weak hands” are flushed out, the longer-term dollar bulls may be able to regain control and send the DXY higher over the course of 2022. But first things first, traders have a spate of US data to get through on Friday including the December Retail Sales report, the December Industrial Production report and the January preliminary University of Michigan Consumer Sentiment survey, as well as remarks from influential Fed’s John Williams.


You may also be interested:

00:07 22.01.2022
GBP/JPY slumps back to 154.00 level as risk-off flows, weak UK data hit sterling and lower yields, safe haven demand help yen
GBP/JPY dropped 0.7% on Friday, falling from above 155.00 to around 154.00. Risk-off flows and soft UK data weakened sterling while safe-haven demand and lower global bond yields strengthened the yen. GBP/JPY fell sharply on Friday and heavy downside in the global equity market and commodity space weighed on more risk-sensitive currencies such as sterling, whilst a sharp drop in global bond yields on safe-haven demand boosted the rate-sensitive yen. Much worse than expected UK Retail Sales
23:27 21.01.2022
S&P 500 drops below 200DMA for first time since June 2020, nearing 4400 as investors spooked by poor Netflix guidance
US equities continued to fall on Friday after downbeat subscriber guidance from Netflix, whose shares dropped over 20%. The S&P 500 dropped another 1.6% towards 4400 after failing to test 4500 earlier in the session. The index is now down 5.4% on the week and has broken below its 200DMA for the first time since June 2020. US equity markets continued to sell off on Friday, as downbeat earnings from tech giant Netflix weighed on sentiment and its competitors. NFLX shares dropped over 20%
20:51 21.01.2022
NZD/USD stable in 0.6725 area after Thursday/Friday’s APac session drop, next week’s Fed meeting & NZ CPI data eyed
After dropping sharply during Thursday’s US and Friday’s APac sessions, NZD/USD has stabilised in the 0.6725 area. Next week’s Fed meeting and New Zealand CPI data will be the key events to watch. NZD/USD will be eyeing a test of the 0.6700 level. After dropping sharply late on Thursday/during early Friday Asia Pacific trade after slipping below an uptrend that has supported the price action going all the way back to mid-December, NZD/USD has stabilised in the 0.6725 area
Bonuses VIP