GBP/USD - Investors are skeptical about the rally, bond yield spread nears key support

Omkar Godbole FXStreet Contributor

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).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Slightly Bullish	Overbought	High
1H	Slightly Bullish	Overbought	Expanding
4H	Slightly Bullish	Overbought	High
1D	Bullish	Overbought	Shrinking
1W	Bullish	Neutral	Shrinking
Updated Jul 27, 03:00 GMT

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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