- The GBP/USD remains weak while it is in its 9th day of consolidation.
- The US Dollar Index broke a new multi-week high on Wednesday and is now consolidating while some analysts call for “USD dead cat bounce.”
The GBP/USD pair fell again on Wednesday but failed to break the low at 1.3451 made on Tuesday. Technically, the pair is ranging for the 9th-day in-a-row as bears are trying hard to create the next bear leg. GBP/USD is trading at around 1.3500 virtually unchanged on Wednesday.
Cable was mainly offered in the European session however in the first part of the American session it found an intraday floor just above 1.3450 creating a double bottom with Tuesday’s low. The pair is now consolidating in the 1.3500 region.
The strong US dollar demand is keeping the GBP under pressure. The US Treasury yields are trading at multi-year highs while bonds are trading lower. Indeed, investors are eager to buy the USD because they expect its value to rise in the coming months as the Federal Reserve Bank is widely expected to raise interest rates three to four times in 2018. Additionally, investors are also eager to buy the greenback for the interest rate it yields and the relative safety of the currency as opposed to stocks and bonds which are considered riskier assets.
The US Dollar Index (DXY) which measures the greenback relative to a basket of currencies has broken to new multi-week’s high on Wednesday but is now consolidating in the 93.30 region. However, Arnaud Masset analyst at Swissquote, writing about USD said that “the rally is overstretched” adding “overall, we are bearish on the buck: the recent appreciation is widely overdone.” He is calling the recent move higher in USD a “dead cat bounce.”
Meanwhile, GBP is weak relative to the USD as the recent macroeconomic data in UK disappointed market’s expectations for a rate hike in May. However, as the recent UK data kept coming worse-than-expected the market sold GBP as it was no longer expecting the Bank of England (BoE) to hike in May anymore. At its last meeting on May 10, known as Super Thursday, the BoE, as expected, left its target for the overnight rate unchanged and made some dovish comments. Nevertheless, some analysts at ING and Swissquote Bank noted that the market has likely over-reacted when it comes down to selling the British pound.
“Dovishness is overpriced. Current sterling weakness is time to reload GBP long. Longer term, much depends on Brexit: our base scenario is for an EU-UK friendly outcome. We are positioned for a positive swing in oversold GBP on either good news on Brexit or pickup in domestic data,” wrote Eric Johnson from Swissquote Bank.
GBP/USD 4-hour chart
The trend remains bearish and support is seen at 1.3450 low of the week followed by the 1.3400 figure. To the upside, bulls should expect resistance at the 1.3550 supply level and the 1.3600 figure. The market is trading below its 50, 100 and 200-period simple moving averages on the 4-hour time-frame suggesting strong downward momentum.