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Sep 14 - 11:55 PM

GBP/USD - COMMENT-Deeper Dip Viable After Sterling Target Reached

By Andrew M Spencer  —  Sep 14 - 09:50 PM

Sterling reached its technical target around 1.3900 on Tuesday and the subsequent steep reversal opens the door to a deeper correction, as the UK prepares for a "bumpy" winter due to the coronavirus.

The GBP/USD rejection of the lower 21-day Bollinger band in August, and sustained break of the 21-day moving average (currently at 1.3770) in September, tested the upper Bollinger band target at 1.3897 in New York on Tuesday.
This was similar to the move in July.

Sterling bounced after buoyant UK jobs data nL8N2QG12M, then softer U.S. CPI nL1N2QG130 saw the USD sold and cable hit a 1.3913 high.
A USD rebound followed, fuelled by safe-haven demand, which could have further to run, and GBP/USD slid to 1.3804.

The sharp reversal reinforces the idea that a top is in place around 1.3900.
Support starts at 1.3794, 38.2% of the August-September rise, with the 1.3770 21 DMA below.
A sustained 1.3770 break would target a return to the rising lower Bollinger band, which is currently at 1.3644.
This would be a repeat of the July-August fall.

Longer term, the effectiveness of the UK government's measures in controlling the coronavirus over winter will be key for sterling.
Health minister Sajid Javid announced a five-point plan Tuesday nL8N2QG437, including COVID boosters for over-50s to cope with a "bumpy" winter nL1N2QG0QD.
Only time will tell.

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Source:
Refinitiv IFR Research/Market Commentary

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