GBP/USD: headed to 1.4375?

Analysis General

Published: 2/15/2018 12:28:00 PM

The greenback is bid and wants to get over the 1.41 line with closes to end the week. The weak environment for the greenback after yesterday's downgrading of various GDP estimates and trackers have put aside the Brexit concerns for the time being while investors concern themselves with trying to unravel the murky outlook for the US economy. 

US Dollar anaemic below 89.00

The US open was broadly negative in terms of risk although Wall Street did start the day off with a bid lead by strong earnings from Cisco yesterday helping to put a bid in the technology sector, (S&P 500 climbed 17points to get above the 55-DMA at the pen). However, the stocks were really just consolidating within a sideways channel of yesterday's post CPI/retail sales data recovery and quickly turned south again. 

The correlations are broken

The correlations are broken and the VIX is climbing again with a break above 20 recently.  US 10y yields have since dropped back to 2.8894%, now -0.44% for the day within a range of between 2.8803 - 2.9424%. The has been under water despite higher yields in Europe and has extended its decline in the DXY for the session so far in NY, currently -0.43% at 88.741 within a range of 88.585 - 89.004. 89.33 is key to the downside). 

Cable has also been underpinned after due to flows in the crosses, with some demand in GBP/JPY, (after USD/JPY weakness in Asia) and a slide in EUR/GBP. Overall, from a fundamental perspective, cable is caught between hawkish BoE expectations, Brexit concerns, but market's reluctance to be long of the dollar and denominated assets and concerns for higher borrowing costs/government spending/deficits and inflation while the perception of Trump's American first strategy, in terms of growth and trading relationships rests largely on a weak dollar in the near term. 

GBP/USD levels

1.4100 was the target and it was filled with offers around 1.4010. So where next? Daily and the 4hr RSIs are still positive and are tinkering with overbought territory with room for the price to run higher towards the 200-week moving average that is located at 1.4375. This remains a key target above 1.4150 to put the bulls back on the map at the Jan highs.  1.3800 guards 1.3770 and then the 1.3658 level, (September peak).

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