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I explored GBP/USD yesterday and its break of a key uptrend support which has been in place since July last year. While the pair remains fairly resilient just shy of 1.7000, there are signs of strain and it seems it is just a matter of time before we witness further weakness in cable. Perhaps the reason the pair managed to remain resilient in US trade was a disappointing pending home sales reading. This kept the US dollar at bay and prevented further carnage for now. Strategy wise, selling into strength could be the best value trade. Any moves back into the previous uptrend support line could be used as an opportunity to sell.
Further USD gains likely
With a massive week ahead in the US (employee cost index, 2Q GDP, payrolls, FOMC), it’s interesting to see price action in USD/JPY. The pair has closed above the April downtrend and the July double-bottom. This suggests a short-term move to 102.50. Momentum indicators are also suggestive of higher levels.
It’s also interesting to see short-term US yields underperforming, with the two-year treasury up around 3 basis points over the last five days. While we are seeing a bear flattening of the yield curve, a rise in short end yields will help USD/JPY.
On the calendar today we have the conference board’s consumer confidence reading along with the Case-Shiller house price index.