British Pound was the best performing major currency on Thursday, courtesy of broad based dollar selling and not so dovish BOE. Fed’s backtracking from December’s hawkish view has triggered a wave after wave of dollar selling, pushing majors and EM currencies higher. Furthermore, Bank of England was not so dovish, still calling for a gradual rate rise despite ECB’s bazooka and dovish Fed. BOE did warn about Brexit’s negative impact, but focus was more on the improving labor market and wage growth figures.
Cable took out 50-DMA in mid-Europe and rose to 1.4330 (23.6% of 1.5930-1.3835), which too was takne out in a one go, triggering a rally that ensured the spot closed above 1.4436 (Mar 11 high).
With no major data due for release in Europe or US, markets may chose to take profits on dollar short positions ahead of the weekend. Consequently, odds are high the pair may fall back to 1.4436-1.44 levels.
Technicals – Is it forming a larger inverse head and shoulder?
Pair’s daily closing above 1.4436 (Mar 11 high) has signaled continuation of the recovery that began from the low of 1.3835.
Given the overbought RSI on the intraday timeframe, the spot may see a drop to 1.4436-1.4390 before moving higher.
On the higher side, a break above 1.4512 (76.4% Fibo exp of 1.3835-1.4436-1.4053) would open doors for a rise to 1.4653 (100% Fibo exp), which is closer to a major hurdle at 1.4669.
Short-term bullish invalidation is seen only if the spot sees a daily close below 1.41 levels.
The odds of pair forming an inverse head and shoulder with neckline at 1.4669 would increase if the spot reverses trend from near 1.46-1.4669 levels in days ahead.Such a move appears likely as dollar weakness is here to stay for some time. However, Brexit fears are likely to be back again, and trigger fresh sell-off from range of 1.46-1.4669.
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