Following big falls in some risk-sensitive assets on the back of North Korea tensions, a number of global stock indices and dollar currency pairs ended the session with impressive reversal-looking technical patterns as the dip buyers evidently stepped in to take advantage of the lower prices (see the technical outlook section below).
The pound, already out of favour ever since the Bank of England’s last policy meeting a couple of weeks ago, fell further yesterday in response to softer-than-expected UK inflation figures.
Over the past week and a half, market participants have been forced to reduce their Bank of England rate hike expectations due to the recent soft patch in UK economic data.
After yesterday’s big sell-off, European equities have bounced back and US index futures point to a higher open on Wall Street.
The British pound gapped higher at the open on Monday, and then reached to the 1.2750 level.
The British pound rose slightly during the day on Friday, grinding towards the 1.28 handle. The 1.28 level is obviously offering a bit of resistance, but it appears that the market is stubbornly trying to break above there.
The GBPUSD started the day how it ended yesterday: higher. Speculators were still felling bullish after the stronger UK inflation figures had raised the prospects that the Bank of England may turn hawkish.
Today’s going to be a quieter session in terms of economic news, ahead of key events later this week. There are however at least three factors that need to be watched closely.
Economic data out of the UK released in the last couple of days has been pound-positive, yet the GBPUSD is still holding below the 1.30 handle. But for how long? Given that the positively-correlating EURUSD pair has already broken well above its own corresponding psychological hurdle at 1.10 after a sharp rally, the cable could be playing catch up.
The dollar has been trending lower ever since the turn of the year. This has been because of the unwinding of the bullish positions that had been accumulated before and after the US election in part as investors began to question how much of the promised fiscal spending President Trump will actually deliver and how this may impact growth and inflation, and in turn interest rates.
