The GBP/USD pair fell on Tuesday on the back of a weaker-than-expected preliminary UK Q3 GDP figures and broad based USD rally despite weak US data. The spot dipped to 1.5330 after the UK GDP release, but recovered losses on upbeat service sector output. In the US session, a fresh wave of selling hit the pair taking it to a low of 1.5282, despite weak US data. The pair eventually ended the day at 1.53 levels.
USD a risk-off currency?
It appears the USD Is once again being treated as a risk-off currency. The USD would strengthen on weak US or global data before the taper tantrum and the rate hike talk began. Both were viewed as a sign of economic momentum in the US and thus, the USD was treated as a risk currency. However, things appear to have changed slowly since the Sept 17 Fed meeting. The sell-off in the USD index was quickly undone after the ECB hinted at more easing in December and the PBOC cut rates. Furthermore, a weak US data also led to dollar rally. All this is pointing to a possibility of USD being treated as a risk-off currency; given that a rate hike is unlikely anytime soon. Moreover, dropping rate hike bets also make long treasuries an attractive bet.
With no major data due for release today, the USD could continue to gain ground ahead of the Fed rate decision due in the US session. The impact of the Fed meeting on GBP/USD and Gold is discussed here (Macro Scan)
Technicals – Eyes
Sterling’s failure to take out resistance at 1.5387 (Oct 13 high) on Monday, followed by a daily close below the 200-DMA on Tuesday indicates the spot is likely to extend losses today to 1.5248 (50% of Apr-Jun rally). A break below 1.5248 would expose 1.52 (Oct 13 low). A daily close below 1.52 would reinforce bears and open doors for a sell-off to lower end of the falling channel located at 1.5040. On the other hand, the pair could re-test 1.5332 (200-DMA) in case it manages to sustain above 1.53 in early Europe. A break above 1.5332 would open doors for 1.5364 (50-DMA) and 1.5387 (Oct 13 high). For the bulls to make a comeback, the pair needs to see a daily close above 1.5387.
GBP/CHF – momentum stalling near critical resistance
The GBP/CHF pair failed again in Asia today to chew through offers in the range of 1.51-1.5120, despite closing above the trend line resistance yesterday. So a possibility of a correction 1.5053 (previous day’s low) cannot be ruled out. On the other hand, if the pair manages to sustain above 1.5090 in early Europe, the pair could take out 1.5120 and rise to 1.5180 (July 30 high).
EUR/USD Analysis: Awaits FOMC rate decision
The spot has weakened slightly in Asia today. The Fed meet and its impact on EUR/USD is discussed here (FOMC Meeting Forecast)