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Jun 07 - 11:55 PM

GBP/USD - COMMENT-Bounce Does Not Change Sterling's Bearish Outlook

By Andrew M Spencer  —  Jun 07 - 10:00 PM

A volatile session on Tuesday resulted in a strong sterling rebound, leaving a positive technical outlook. Yet fundamentals continue to weigh, as the cost of living surges in the UK and unions respond nL8N2XU4FH. The U.S. dollar should remain resilient overall, capping the pound.

Sterling's drop to Tuesday's 1.2433 low happened in very early European trade amid a string of bad news as PMIs disappointed nZRN004ITMand Prime Minister Boris Johnson's relatively narrow success in the confidence vote generated political uncertainty, ahead of two crucial by-elections on June 23 nL8N2XU2BE.

With the USD and Treasury yields falling early in New York, sterling surged as shorts were squeezed, resulting in a bullish outside day. The potential positive signal would be confirmed by a close above the 1.2600 high, suggesting further gains.
Conversely the bounce was in late London trade when liquidity is reduced, potentially exaggerating moves and providing an opportunity for bears.

Technically 5, 10 and 21-day moving averages edge higher with momentum studies and 21-day Bollinger bands, as Tuesday's bounce turned a negative setup into a modest positive scenario.

Choppy consolidation has been the major feature since late May.
Key support is at 1.2411, 50% of the May climb, and bulls need a close above the May 1.2666 trend high to get excited.

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Source:
Refinitiv IFR Research/Market Commentary

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