GBP/USD - Investors are skeptical about the rally, bond yield spread nears key support
|The broad based USD selling following the FOMC rate decision pushed the GBP/USD pair above 1.31 handle. The pair remained well bid in Asia and rose to 1.3149; its highest level since September 2016.
However, investors aren’t buying the bullish breakout. As seen on the chart below, the 3-month 25-delta risk reversal remains depressed.
The risk reversal has remained flat lined in the range of minus 0.70 to minus 0.80 from June 29. During the same time period, GBP/USD has established higher lows. The divergence clearly indicates the investors are still skeptical about the rally.
US-UK 10-yr yield spread
- The yield spread has been steadily losing height in favor of the British Pound. The spread now hovers close to the support offered by the trend line sloping higher from the Q2 2016 low and Q4 2016 low.
- The spread could drop below the trend line support if the US durable goods orders data due for release at 12:30 GMT disappoints expectations. A break below the trend line could yield another leg higher in the GBP/USD pair.
GBP/USD Technical Levels
The daily chart shows a rising wedge formation. The immediate resistance is seen at 1.3170 (wedge hurdle) ahead of 1.32 (psychological level) and 1.3274 (161.8% Fib ext. of Jan 16 low - Feb 2 high - Mar 14 low). On the downside, a break below 1.3106 (session low) would open up downside towards 1.3061 (5-DMA) - 1.3050 (10-DMA) and 1.30 (psychological level).
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.