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Jignesh Davda

Dollar Showing Little Reaction to Trade War Developments

China said it has made an agreement with the US to rollback tariffs, in phases, which has boosted risk sentiment. US equities are breaking to fresh record highs in pre-market futures trading and gold prices have once again fallen under pressure after a brief recovery yesterday.

The dollar, however, is not seeing much of a reaction. The US dollar index (DXY) has been firmly bid through the week after buyers stepped in to defend the 50-week moving average. DXY hit a technical hurdle yesterday from a level that also held the index lower last week. It has fallen into a narrow range since.

Similar price action is seen in GBP/USD as volatility continues to slow in the pair. That could change as the Bank of England meets today. The BoE has not triggered much volatility in the markets in their last few meetings.

Today’s meeting could be different as the central bank will share its views after some fairly important developments. Specifically, the delay of Brexit and the upcoming election in the UK.


Technical Analysis

I have been following a bullish flag pattern in GBP/USD and have had a bit of a bullish bias while carefully following the correction lower over the last week.

The issue, however, with taking a bullish stance is that the dollar is showing some strength and there has not been a clear show of sellers in the DXY technical charts.

Further, the reaction from the BoE meeting is unpredictable. As mentioned, while today’s meeting stands to trigger volatility, recent meetings have not.

GBPUSD 4-Hour Chart

A horizontal level at 1.2846 has come into play and so far, GBP/USD has posted a bullish engulfing candle on a 4-hour chart after testing the level.

A break back above 1.2924 would offer a better signal that the pair has resumed within the broader bullish trend.

Bottom Line

  • GBP/USD continues to correct lower with low momentum.
  • A break above 1.2924 might offer a better bullish signal.
  • The Bank of England meeting stands to introduce some volatility.
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