GBPUSD exploded through resistance late last week and tested final resistance areas today in the positive market reaction to the Greek election news. Rest of the week will be pivotal for the outlook.
Sterling has been a tough currency to draw a bead on over the last few trading sessions. While a squeeze higher – like the one in cable on lopsided speculative positioning – is not an unusual thing to witness before a key event risk, like this last weekend’s Greek election or this Wednesday’s FOMC meeting, it has been especially surprising to see GBP strength in light of last week’s move by the BoE and the UK government to offer further easing measures that one would normally expect to weaken the currency. Certainly, rates at the short end of the UK curve have dropped very significantly, with the two-year benchmark pushing about 10 bps lower last week and shrinking the UK/US spread to the lowest for the cycle (at -8 bps due to the Fed’s Operation Twist.).
This week will be all about determining whether the move in GBPUSD can find some justification – perhaps as the market has merely been anticipating that a Fed move of equal or greater “easing force” will unfold at this week’s FOMC meeting or whether the squeeze was merely a move in anticipation of the meeting and a buy the rumor, sell-the-fact setup. Stay tuned.
Chart: GBPUSD
Technically, it is easy to spot the last couple of lines in the sand – the 1.5600 resistance line that gave way late last week and the 200-day moving average that has been in play overnight. The latter is the last line of resistance for now if GBPUSD is to stay in the lower part of the year’s trading range. Renewed hope for the bears comes with a move back through the 1.5600 area, while the pair remains in a bit of a limbo between the 1.5600/1.5800 areas.
John J Hardy,
SAXO BANK