GBP/USD Price Outlook Driven Lower by Latest US Treasury Yield Surge
GBP/USD Price, Charts and Analysis
- BoE dovish hints suggest UK interest rate cuts are on the cards.
- US dollar strengthens as US Treasury yields jump.
GBP/USD Slides into Near-Term Support Zone
Sterling continues to struggle against a resurgent US dollar with GBPUSD set to end the week with five negative days in a row. We noted earlier this week that the indecision doji made last Friday suggested that a bearish reversal may occur, and this has been borne out. While Brexit, and the General Election, remain the dominant drivers for Sterling and will continue to remain so, this recent move lower has been sparked by a strong US dollar, bolstered by rising US Treasury yields. Expectations of another US interest rate cut in December are a lowly 5% with market expectations of a cut in January rated at just 20%. The latest Bank of England (BoE) monetary policy release showed that two of the nine MPC members unexpectedly voted for a 25-basis point interest rate cut, while governor Carney warned that risks to the UK economy are skewed to the downside.
The chart below shows the US dollar basket now looking overbought, which may ease the pressure on GBP/USD in the short-term, but the upcoming Uni of Michigan sentiment release may boost the greenback further.
US Dollar Basket Daily Price Chart (March – November 8, 2019)
The daily GBPUSD chart shows the pair entering a zone of short-term support, starting from the October 17 low at 1.2749. this zone should hold but a break and close lower would open the way for GBP/USD to fall further. The 50% Fibonacci retracement level at 1.2670 rests just above the 200-day moving average at 1.2633 and if tested these levels should provide strong support. On a positive note, the 50-day moving average is close to breaking through the 200-day moving average – a ‘golden cross’ – and this may also prove supportive of the pair. The CCI indicator also shows GBP/USD is currently oversold.
GBP/USD Daily Price Chart (March - November 8, 2019)
IG Client Sentimentshows that retail traders are 56% net-long GBP/USD, giving us a bearish contrarian bias.
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