- The last trading week was the strongest for the GBP/USD currency pair, as it moved towards the resistance level of 1.3145, the highest for the pair in six months, before closing the week’s trading around the 1.3082 level.
- Bulls still have the strongest control over the pair’s direction.
- According to Forex market trading, the GBP/USD exchange rate saw a sharp rise, but the GBP/EUR pair fell sharply as the Euro rose amid a continued decline in US stock markets.
- This may reflect a reassessment among investors of the astronomical valuations, which may now be unjustified, that have long prevailed worldwide.
Recently, the decline in the value of the US dollar to its lowest in 3 years coincided with a sharp deterioration in US stock markets, in a clear response to the White House’s trade policy, which aims to bring consumer goods production back domestically. This is expected to erode the earnings and margins of US companies in the short to medium term. This makes the astronomical, if not scandalous, valuations that have prevailed across the Pacific since at least the beginning of the first administration led by Donald Trump, if not longer, indefensible.
According to reliable trading company platforms, the stock market decline is providing a strong boost to the Euro, Swiss Franc, and Japanese Yen, which in turn exacerbates the ongoing declines in both the US Dollar (trade-weighted) and the Chinese Renminbi (trade-weighted), which has fallen significantly below the minimum level set by Beijing for the currency (CHF/CNY, JPY/CNY, and EUR/CNY).
Trading Tips:
The Pound will remain the strongest even with a rebound in the US Dollar price, and therefore, the strategy to buy GBP/USD remains in place.
Bond Selling Affects Market Stability
Amid significant activity in the global bond market, analysts are asking, “If the US government causes stock prices to fall and reduces the profitability of US companies, we must ask ourselves: does the rest of the world still want to invest all its money in US bonds or in stocks?” and “Cash flows have become much larger than trading flows.”
Recently, the UK 10-year bond yield has been trading around 4.75%, maintaining a sense of unease about financial stability in Britain.
According to financial market experts, while bond market instability is driving outflows of US dollars from the United States, markets are anticipating instability in the UK bond market. The sell-off in British government bonds, as we have seen previously following UK financial events, coincided with temporary periods of weakness in the British pound and will increase the risk of a decline in growth in the UK if high yields persist.
Technical Analysis for the GBP/USD pair today:
Looking at the daily chart above, you will notice that the overall trend for GBP/USD remains bullish and may continue as long as it remains stable above the psychological resistance of 1.3000. As mentioned before, this encourages technical buying for the GBP/USD pair. With the recent gains, the 14-day RSI has turned upwards and still has more room before reaching the overbought barrier. At the same time, the Stochastic oscillator is closest to breaking this barrier. The MACD indicator is also in a bullish turn. The nearest resistance levels for GBP/USD are currently 1.3140, 1.3220, and 1.3300 respectively. From the last level, technical indicators will move towards strong overbought levels.
Conversely, over the same timeframe, the 1.2880 support level will remain an important barrier to a downward trend. The currency pair is not awaiting significant performance-influencing data during today’s trading. Therefore, investor sentiment regarding risk appetite and the performance of global financial markets will continue to influence today’s trading.
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