LCG Research Team: The week started with a good risk appetite. The US dollar softened across the board. The US and European equity futures were bid in Asia, as expectations for a Federal Reserve (Fed) rate hike have been kicked further down the road. The September option appears to be pushed aside by the market, although the Fed did not rule out the possibility of a hike at the September meeting.
Technical alert on GBPUSD hourly chart
The broad based depreciation in the US dollar sent the GBPUSD above 1.3218, the major 38.2% retracement on July 15 – July 26 decline.
The hourly trend and momentum indicators are positive with higher trading volumes compared to the last two weeks.
The bullish momentum is at risk however as, the looming downside risks could rapidly dent the appetite in the sterling and hand the market back in bears’ hands before the Bank of England’s (BoE) policy decision and the Quarterly Inflation Report (QIR) due on Thursday.
The market expects the BoE to lower the bank rate by 25 basis points and to proceed with a significant downside revision on the economic forecasts following Britain’s decision to leave the European Union. Due to expire this week, puts are dominant between 1.32 – 1.30, while calls come into play above 1.33.
On the daily chart, the pair remains comfortably in the mid-term negative trend. A critical technical resistance is eyed at a distant 1.3627, the major 38.2% retracement on post-Brexit sell-off. We could consider a sustainable recovery, and not a USD-based correction, only if this level is surpassed.