When the GBP/USD begins trading tomorrow it will take place under a cautious banner which has produced rather choppy results the past month. The currency pair is still within its long-term higher realm, but below its apex values achieved in late January when the 1.38500 was challenged.
However, as the day ended the GBP like other major currencies saw strength build against the USD as weaker inflation in the U.S. once again sparked the notion the Federal Reserve needs to be more aggressive about cutting interest rates.
The broad Forex market has seen increased volatility the past couple of weeks. Tomorrow will see an absence of the large U.S. financial institutions because of an American holiday. This means lighter volumes will factor into the GBP/USD early and full trading will not return until early on Tuesday. However, the moves which have been sparked in recent trading should be kept in mind and the notion that surprises may happen should be monitored. Intriguingly, during the height of cautious trading in the GBP/USD on Friday, the 1.36000 while getting challenged and penetrated lower, showed resilience as the weekend grew near buying was sparked the last handful of hours.
The 1.36500 level could prove to be an interesting barometer early this week. If trading on Monday via Asia and the London desks maintain the GBP/USD above the 1.35500 as Tuesday takes hold, this may be signal financial institutions are leaning into a strong GBP outlook. While an internal fight has certainly been heard from inside the U.S. Fed about what to do regarding interest rates, the lower than anticipated inflation numbers this past Friday certainly gave the White House more firepower regarding their argument for the Federal Funds Rate to be cut.
However, an important element still must be considered regarding the GBP/USD, and that is caution. The broad financial markets continue to produce a high level of noise regarding equity values, bonds, and commodity prices.
- Forex has seen a definite uptick in volatility the past few weeks and this may not go away as risk-adverse behavioral sentiment threatens to shift outlooks.
- The GBP/USD is within the upper part of its long-term charts, but from a week’s perspective and monthly contemplation, the currency pair is still below highs and could be considered closer to lows.
- Meaning financial institutions are still leaning into cautious attitudes.
- It could be said that even in the wake of better than expected U.S. inflation news, the GBP/USD did not gain dramatically.
Speculative price range for GBP/USD is 1.36060 to 1.37300
The door is open for the possibility of dramatic trading this week in the GBP/USD. The currency pair still finished below Thursday’s high watermarks. And even though the GBP/USD finished with an uptick, the currency pair’s inability to really gather strength and jump higher is concerning. The lack of velocity upwards after the U.S. CPI data highlights that caution is still a factor in financial institutions. Risk-adverse attitudes remain genuine.
The absence of the Americans tomorrow will be a good indicator of where behavioral sentiment is with the Asian and European financial institutions. Canada is also on holiday tomorrow it should be noted. The GBP/USD is at an interesting juncture and the 1.36500 could prove to be a solid barometer for traders moving forward, particularly upon the return of North American financial institutions on Tuesday. Day traders should be careful, Forex has shown the capability of producing choppy results the past few weeks as reversals have been ignited quickly. Looking for upside may feel correct in the GBP/USD, but nervousness remains a threat.
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