The Dollar Catches a Bid
GBP/USD seems to be weighed by a bounce in the greenback as the US dollar index (DXY) is catching a bit of a bid in early trading today.
The USD dollar index fell for three straight sessions before buyers stepped in near the 20-day moving average. The index could extend higher within a bounce, but I think ultimately the direction will largely depend on Wednesday’s FOMC meeting minutes.
Ahead of Wednesday’s minutes, housing data from the US will be released later today and Fed member Williams is scheduled to speak.
GBP/USD made a bullish technical break yesterday after climbing above a declining trendline that originates from the high posted in October. The bullish break signals a potential continuation of the prior bullish trend. The pair triggered some stops from weak hands positioned against the October 31 high and has since eased lower.
GBP/USD is hinting at a pullback as it trades near the lower bound of a range that has been in play since the European open yesterday.
The reaction around the previously broken trendline will be important on pullbacks. If the markets respect the trendline, I would expect the recent upward pressure to continue.
Today’s daily close will also be important in the event the pair pulls back. Even if the trendline is respected, a daily close near it would result in a bearish reversal pattern on a daily chart which would not be encouraging.
The best case for bulls here would be for the pair to test the trendline and bounce sharply higher from it ahead of tomorrow’s Fed meeting minutes. For bears, the ideal scenario would be a drop below yesterday’s low and a close near it.
To the upside, the 1.3000 level has once again proved its importance. Both attempts in October were met with sellers. Yesterday’s attempt fell short of reaching the psychological level. This leads me to believe that bulls are more likely to position either from lower, or wait for a sustained break and then try and position.
- GBP/USD has lost upward momentum after falling about 15 pips short of testing the major 1.3000 level.
- The pair made a significant technical break yesterday by scaling above a declining trendline from October highs.
- The pair needs to stay above this trendline on dips to maintain the recent bullish pressure.
This article was originally posted on FX Empire
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