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Monday, March 8, 2021

GBP/USD pulls back from fresh highs for the week ahead of Jackson Hole

  • GBP/USD consolidated after making a fresh high ahead of the Jackson Hole this week.
  • Dovish monetary policy and its future path is the theme as the August holiday period draws to a close.  

GBP/USD is currently trading at 1.3130 having travelled within a range of 1.3053 and 1.3170 on the bid as the bulls continue to chip away at a downtrodden US dollar.

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The markets are getting set for the major event this week in the Jackson Hole which is leaving the US dollar vulnerable and unable to extend its series of higher highs in the DXY index, capped below 93.50. More on the Jackson Hole below. 

GBP positioning jumps to five-month hgh

In the meantime, the pound is pulling a bid in the market despite Brexit uncertainties. It is true, however, that the latest positioning data will not have reflected last week’s collapse in negotiations.

In the week ending 18th August, the pound was showing that there is a demand for the currency as for the net long positioning rallied to a five-month high, catching up with the spot market rally in cable. 

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The latest round of better than expected UK economic data has underpinned strength in the pound, although some may argue that its vulnerabilities have been masked by a weaker US dollar of late. 

The better tone of UK data has pushed back on fears of a negative policy rate from the Bank of England. By contrast, the latest UK political developments have little to offer sterling,

analysts at Rabobank explained. 

Referring to Brexit, unless this status quo alters in the weeks ahead, the analysts are pessimistic on the pound, calling for a higher cross in EUR/GBP.

We see the risk of move to EUR/GBP0.92 on a 2 to 3-month view if a compromise on trade with the EU remains elusive.  

GBP/USD to ride the Jackson Hole higher?

As for cable, much will depend on the outcome of the Jackson Hole monetary policy symposium later this week.

Given the persistent inflation undershoot, the Federal Reserve is expected to indicate that rates could be lower for longer during a symposium themed and entitled as “Navigating the Decade Ahead: Implications for monetary policy”. 

Fed Chairman Powell’s keynote address will offer the market some insights on the Fed’s review of monetary policy and the anticipated average inflation targeting.

That could help to underpin the downside case for the greenback in these summer markets and into the FOMC that next meets on 15/16th September.

Therefore, this could help buoy cable until then which is otherwise under scrutiny from both a fundamental and technical standpoint. 

GBP/USD downside technical case

Analysts at Commerzbank are bearish on GBP/USD, noting that last week reversed just ahead of the 1.3284 December high. 

The new high of 1.3268 was accompanied by a divergence of the daily RSI and this was coupled with a 13 count. We would thus allow for a corrective dip back.

While the currency pair remains below 1.3284 we would allow for a slide to the 1.2814 June high and possibly the 1.2718 support line.

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