British Pound Breaks Out, Australian Dollar Continues to Carve Top

The British Pound surged higher during the European trade and remains the best performing currency against the greenback going into the North American session, and the GBP/USD looks to have carved out a bottom this week as price action hold above the 38.2% Fib retracement of the 2008 high to the 2009 low. The pound-dollar has moved nearly 78% of its ATR ahead of the Federal Reserve interest rate decision and remains 95pips higher from the open following the unexpected drop in U.K. unemployment, and the pair may continue to retrace the decline from earlier this month as the economic outlook for Great Britain improves. However, as the GBP/USD fails to push back above the 100-Day SMA (1.6413), we may see the pair hold a narrow range ahead of Friday’s budget report as public sector net borrowing is expected to increase at a record pace of GBP 23.0B in November after rising GBP 11.4B in the previous month. Nevertheless, as the rally remains overbought, with the 30-minute RSI continuing to hold above 70, we may see the pair fall back to hold along the 10-Day SMA at 1.6351 going into the Asian trade, but comments from Fed Chairman Ben Bernanke are likely to move the markets as investors weigh the outlook for future policy.

The Australian dollar lost ground for the second day and slipping to a low of 0.8956 as the 3Q GDP reading reinforced a weakened outlook for future growth, and the AUD/USD may continue to trend lower going into the following year as the Reserve Bank of Australia looks to keep borrowing costs on hold at its next policy meeting in February. The aussie-dollar remains nearly 70pips lower from the open after moving 85% of its average true range, but has bounced back from the low after being oversold during the overnight trade. Meanwhile, the downward trend in the 10 and 20 day moving averages support a bearish outlook for the high-yielding currency as price action continues to hold below the 50-Day SMA at 0.9171, and a break below the November low (0.8906) could lead the pair to retrace the September advance as the it continues to carve out a near-term top following the break above 0.9400 during the previous month.

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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com