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GBP/USD Rallies to 4-Month High as a Weaker Dollar Overshadows Brexit Concerns

By:
Jignesh Davda
Published: Jul 27, 2020, 10:31 UTC

GBP/USD has cleared above important resistance to trade at highs not seen since March as dollar weakness persists.

GBP/USD

GBP/USD traders brushed off concerns that a trade deal may not be reached between the UK and Europe, opting to push the pair higher as the dollar continues to weaken.

Last week, media outlets reported the UK government is ready to trade on WTO terms, signaling the unlikelihood of reaching a deal with EU leaders as trade talks are not progressing.

The news led to a pause in the GBP/USD rally near the same level that had held it lower in June. However, a persistently weaker greenback has underpinned the exchange rate for a move to new quarterly highs.

The greenback is in the red against all of the major currencies for the month thus far and the trade-weighted dollar index (DXY) has extended lower to levels not seen in 10 months.

Risk-on sentiment has been a major driver in the markets and cause for bearish pressure on the dollar. Also weighing on it is the expectation that real rates will be suppressed for some time, indicative by a further plunge in bond yields.

Later in the North American session, the US will release it’s latest durable goods orders figures. The highlight in terms of economic releases this week is likely to be Wednesday’s Fed decision.

Technical Analysis

GBPUSD Daily Chart

GBP/USD has made some notable bullish breaks as of late. It first cleared 1.2640 which was previously strong resistance in April. The pair then pushed above 1.2751 which acted as resistance in June and support at the start of March.

The 1.2751 level is now seen as strong support for any near-term dips. The next potential target to the upside comes at 1.2957 which was a major resistance level for the pair in the fourth quarter of 2019.

GBP/USD has had a strong correlation with the equity markets as of late and therefore traders may want to keep an eye on the major stock indices.

SPY printed an exhaustion candle last week, ending a three-week bullish streak. If this translates into bearish pressure later in the day, the pound to dollar exchange rate may react in a correlated fashion.

Bottom Line

  • Dollar weakness continues to underpin the major currencies, pushing GBP/USD to a fresh 4-month high.
  • Wednesday’s Fed meeting is likely to be the highlight for the week in terms of economic releases.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.

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