GBP/USD had an excellent week, playing catch up with its peers amid optimism about Brexit and a very weak US dollar. PMIs stand out as we turn the page into February. Here are the key events and an updated technical analysis for GBP/USD.
A hint towards a softer Brexit by French President Emmanuel Macron and hopes that the British public is also leaning in that direction stirred optimism. UK GDP came out at 0.5% q/q. While 2017 saw weak growth in absolute terms and in comparison to other developed economies, the figure came out above expectations. US dollar weakness was a big story that began a few weeks ago but got another push by Mnuchin’s endorsement of a weak dollar. His comments were somewhat taken out of context and his boss, Trump, later cheer-leadered a strong dollar.Nevertheless, the pound was a big winner and not only against the greenback.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
BP/USD Technical Analysis
Pound/dollar settled above the 1.3950 level (mentioned last week) and continued to much higher ground, reaching a peak of 1.4345.
Technical lines from top to bottom:
1.4745 capped the pair ahead of the Brexit referendum in 2016 is our high point. Further below, we find 1.4665 which capped the pair early in that year. 1.4520 is also a resistance line from that period.
1.4345 is the January 2018 swing high that is worth watching. The round number of 1.41 held the pair up after falling from that level. In the middle, we can point out to the veteran line of 1.4240, but volatility is somewhat wild here.
1.3945 was a swing high in January 2018. 1.3830 served as support after the break of the financial crisis.
1.3743 was a peak early in January and should be watched. The previous cycle high of 1.3620 serves as strong resistance.
1.3550 was the November peak. 1.3460 capped the pair in mid-December and serves as resistance.
Here is the bigger picture of GBP/USD, using the weekly chart:
I am bearish on GBP/USD
The rise of the pound, given a weak economy and realistically, not-so-great Brexit prosepects, is quite surprising. At these highs, after five consecutive weeks of rises and an extended move in the past week, the move seems stretched and calls for a correction.
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