GBP/USD - Chart-driven pullback?
|- GBP/USD fades spike to 1.40.
- Various intraday divergences suggest caution.
- Elevated levels unjustified as per widening US-UK yield spread.
Having clocked a fresh post-Brexit vote of 1.4003 in Asia, GBP/USD is trading on the back foot in Europe. As of writing, Cable is trading at 1.3965 levels. The pullback appears to have been driven by technical factors.
Commerzbank Analyst Karen Jones calls for caution, courtesy of various intraday divergences on intraday charts. Also, 13 counts on the 60 minute, 240 minute, daily and especially the one seen on the weekly chart could make it difficult for GBP bulls to scale 1.40.
Further, the recent rally is not backed by the widening 10-year US-UK yield differential. The spread clocked 10-month high of 130 basis points this week. So, the pair may continue to lose altitude.
That said, the greenback is still the most hated currency, hence dips could be short-lived, especially if the EUR/USD continues its ascent.
GBP/USD Technical Levels
Haresh Menghani, Editor, and Analyst at FXStreet writes, "the near-term overstretched conditions warrant some consolidation before an extension of the near-term strong bullish trajectory. Hence, any subsequent up-move beyond the 1.40 handle might now confront some fresh supply near the 1.4030 region. A clear break through the mentioned barrier could pave the way for a test of 1.41 round figure mark, which could now act as a near-term ceiling.
On the flip side, any meaningful retracement is likely to find immediate support near the 1.3940-35 region, below which the pair could correct back below the 1.3900 handle and head back towards testing 1.3855-50 support area, marked by 61.8% Fibonacci retracement level of the pair's post-Brexit slump.
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