GBP/USD drops to 8-week low, Risk Reversal and Bond yield spread warrants caution
|GBP/USD finally breached the 50-DMA to the downside in a convincing manner on Tuesday and extended losses in Asia to an 8-week low of 1.2805 levels. The downside break of the recent trading range of 1.2830-1.2920 marks the continuation of the sell-off from the recent high of 1.3268.
However, the one-month 25-delta risk reversal remained unchanged at -0.60 on Tuesday, which means the demand for Puts did not increase despite the downside break of the trading range.
Furthermore, the US-UK 10-year yield spread remains stuck in a falling channel pattern. Thus, bears need to observe caution.
A technical breakdown would look more convincing if accompanied by an upside break on the yield spread chart and drop in the risk reversal below -0.60 [that would be lowest since June 26].
GBP/USD Technical Levels
Valeria Bednarik, Chief Analyst at FXStreet, writes, “from a technical point of view, the downside remains favored, given that in the 4 hours chart, the 20 SMA began gaining downward momentum above the current level, whilst technical indicators hold within bearish territory, with the RSI indicator already gyrating south around 35. A bearish extension through 1.2810 should favor an approach to the 1.2700/20 region, where the pair presents multiple relevant daily highs and lows from earlier this year.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.