- Resurgent USD demand prompted some heavy selling around GBP/USD on Thursday.
- Surging US bond yields, the risk-off mood provided a strong boost to the safe-haven USD.
- The near-term technical set-up might have already shifted in favour of bearish traders.
The GBP/USD pair witnessed some aggressive long-unwinding trade on Thursday and erased its weekly gains to the highest level since April 2018. A combination of factors allowed the US dollar to make a solid comeback, which, in turn, was seen as a key factor behind the pair's corrective fall. The continuous surge in the US Treasury bond yields remained the focal point in the market amid the prospects for a strong global economic recovery. The impressive pace of COVID-19 vaccinations, along with the progress on the US President Joe Biden's proposed $1.9 trillion pandemic relief package has been fueling the reflation trade. The developments continued pushing the yields higher and benefitted the greenback.
Meanwhile, the runaway rally in the US bond yields raised fears about distressed selling in other assets and triggered a fresh wave of the global risk aversion trade. This was evident from a sharp pullback in the equity markets, which provided an additional boost to the USD's relative safe-haven status against its British counterpart. Apart from this, Thursday's mostly upbeat US economic releases remained supportive of the strong bid tone surrounding the greenback. In fact, the US fourth-quarter GDP growth was revised higher to 4.1% annualized pace from 4.0% reported previously. Adding to this, Durable Goods Orders for January and Initial Jobless Claims also surpassed market expectations by a big margin.
The pair tumbled around 180 pips from daily swing highs and weakened further below the key 1.4000 psychological mark during the Asian session on Friday. The prevalent risk-off environment forced investors to take refuge in the safe-haven USD and exerted some follow-through pressure on the major. There isn’t any major market-moving economic data due for release from the UK, leaving the pair at the mercy of the USD price dynamics. The US economic docket features the releases of Core PCE Price Index, Personal Income/Spending data, Goods Trade Balance and Chicago PMI. This, along with the broader market risk sentiment and the US bond yields, will influence the USD and produce some trading opportunities on the last day of the week.
Short-term technical outlook
From a technical perspective, the overnight slump below a three-week-old ascending trend-line support could be seen as the first sign that the pair has topped out in the near-term. A subsequent fall below the 38.2% Fibonacci level of the post-BoE strong positive move now seems to have shifted the near-term bias in favour of bearish traders. Hence, some follow-through weakness towards the 50% Fibo. level, around the 1.3900 round-figure mark, looks a distinct possibility. A sustained break through the mentioned support should pave the way for an extension of the corrective slide towards mid-1.3800s en-route the 61.8% Fibo. level, around the 1.3820-15 region and the next relevant support near the 1.3785-80 horizontal support.
On the flip side, the 1.3985 region (38.2% Fibo. level) now seems to act as immediate resistance. Any further recovery beyond the 1.4000 mark might now be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 1.4035 supply zone. This, in turn, should now act as a strong barrier, which if cleared decisively will negate any near-term bearish bias.
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.