With the US having initiated lift-off, USD strength has been most noticeable against the beleaguered British Pound which has suffered from severe blows to UK rate-hike expectations. The recent retreat in wage growth data, which was a key driver in the argument for a UK rate increase, has seen sharp selling in Sterling. The latest Average weekly earnings data fell back from 3% to 2.4% in the 3mths to October. To add further weight to the Pound’s decent is the increasingly prevalent issue of a “Brexit” with the accompanying uncertainty dampening investor sentiment though notably, Retail traders remain as much as 70% long GBPUSD.
The US Dollar continues to strengthen following lift-off and is likely to be further supported by positive Non-Farm Payrolls data this week alongside a potentially Hawkish FOMC minutes release. In comments made over the weekend, Fed’s vice chairman Stanley Fischer said that “raising interest rates may be the appropriate step” if asset prices are thought to be excessively high, paving the grounds for further rate tightening this year after the first hike in nearly a decade last month. In the same American Economic Association meeting on Sunday, Cleveland fed chair Loretta Mester said that the path of hike will be gradual and decisions will hinge on economic data and medium term outlook. Currently, the market anticipates four 25 bps hike in 2016.
- The most recent leg-down in GBPUSD, which saw price clearly rejected at the Daily VWAP, leaves clear overhead resistance at the 1.48 level which should see decent selling interest if retested.
- I will be monitoring a retest of the 1.48 level for reversal patterns to sell into with a stop above recent highs targeting a move down into the 2015 lows around mid 1.45.
- Alternatively I will use a bearish Order Flow signal to enter short.
- Update: Short from 1.4790 stops to entry – 04/01/2016
- Update: Exit half position at 1.4570 – 07/01/2016
- Update: Exit remainder at 1.4570. 2015 low looks like it is going to hold for now, will look to re-enter – 07/01/2016
- Flat +220 pips