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Talking Points
- GBP/USD rebounds from negative sentiment and momentum extremes
- 1.4400 level remains critical
GBP/USD continues to struggle with support turned resistance around 1.4400. This level marks a trendline going all the way back to the mid-1980’s and still seems to be a pretty important pivot for the market. As we remarked last week, the exchange rate looked vulnerable to at least a minor reprieve, as negative sentiment had reached “extreme extremes” on the Daily Sentiment Index and some other metrics.
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Now just how important this reprieve ends up being probably depends a lot, on how the pound reacts around 1.4400 over the next few days. Traction above there – especially on a weekly closing basis opens the door to a much more important corrective process. Another failure to get through 1.4400 and the risk is we head back down again – probably sharply. The low of the week around 1.4175 looks important in this regard as a move below it would help confirm a downside resumption.
The seasonals aren’t helping until March, but If push comes to shove I probably slightly favor a continuation of this recovery given the negative sentiment extremes as it seems that is where the “pain trade” is and Cable has always liked a good pain trade. I think this view is also further bolstered by the 3-week rate of change, which fell to levels that have coincided with some important tradable turns in the recent past. 1.4400 and 1.4175 are key.
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--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter @KKerrFX
