GBP/USD At YTD Lows As US Dollar Hits 16-Month Highs
Matthew Weller | Nov 25, 2021 04:25
As its name implies, the US Thanksgiving holiday is all about expressing gratitude for the good things in life, and despite (or perhaps because of) 30-year highs in inflation readings, US dollar bulls have plenty to be thankful for this year. After all, looking at the US dollar index, a weighted basket that seeks to measure the performance of the world’s reserve currency against its biggest rivals, the greenback is at its highest level in 16 months!
Fundamentally speaking, this move has been driven by traders pulling forward their expectations for monetary policy “normalisation” from the Federal Reserve. While the central bank already announced its tapering plans and most view that as a precursor to the central bank raising rates, the generally strong data that we’ve seen out of the US in the weeks since the last Fed meeting have some traders speculating that Jerome Powell and company could accelerate the tapering process; indeed, this view is increasingly infiltrating even the Fed itself, with Fed members Bostic, Bullard, Clarida, and Waller all seemingly warming to a more aggressive taper.
The hope for dollar bulls is that a more aggressive taper could open the door to an earlier “liftoff” in interest rates. According to the CME’s FedWatch tool, traders are pricing in an 80% chance of at least one hike by the Fed meeting in mid-June 2022, and market is now pricing in the potential for three or more interest rate increases by the end of next year:
Source: CME FedWatch
h3 GBP/USD technical analysis/h3As we noted above, the buck is rising against all of its major rivals, but one of the more interesting pairs is GBP/USD. Cable has been falling within a broader bearish channel for more than six months, with an accelerated bearish channel forming over the last month in particular. As of writing, GBP/USD is hitting a fresh year-to-date low in the lower-1.3300s, but there’s little in the way of meaningful support until the lower 1.3200s, where the lows from Q4 2020 converge with the 38.2% Fibonacci retracement of the entire post-COVID rally near 1.3200.
Get The App
Source: StoneX, TradingView
While continued weakness is the path of least resistance for GBP/USD, there’s at least a chance of a bounce heading into the US holiday to close the week, with the divergence in the 14-day RSI indicator suggesting that selling pressure may be waning. Regardless, traders are likely to look for selling opportunities on any short-term bounces as long as GBP/USD is below resistance in the mid-1.3400s.
Original Post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.