A late USD rebound prompted some profit-taking around GBP/USD on Thursday.
The corrective pullback extended for the second consecutive session on Friday.
Investors look forward a raft of UK macro releases for some meaningful impetus.
The GBP/USD pair failed to capitalize on its intraday positive move on Thursday and witnessed a modest pullback from the vicinity of 34-month tops, touched in the previous session. The US dollar was undermined by Wednesday’s weaker US consumer inflation figures and dovish comments by the Fed Chair Jerome Powell. This, in turn, was seen as a key factor that extended some support to the major. The USD remained on the back foot following the release of the US Initial Weekly Jobless Claims, which further dented expectations for a relatively faster US economic recovery from the pandemic.
That said, a rebound in the US Treasury bond yields helped revive the USD demand and prompted some selling around the pair. The US bond market continued to react to the likelihood for the passage of the US President Joe Biden’s proposed $1.9 trillion COVID-19 fiscal stimulus package. The retracement slide extended for the second consecutive session on Friday and dragged the pair back below the 1.3800 mark during the Asian session. A cautious mood around the equity markets benefitted the greenback’s relative safe-haven status and was seen exerting pressure on the major.
Market participants now look forward to a busy UK economic docket, highlighting the release of the preliminary estimate of Q4 GDP. This will be accompanied by Industrial productions figures and Trade Balance data for December. The market reaction to disappointing readings is likely to be muted amid growing optimism that the UK’s lead in terms of the coronavirus vaccination drive could facilitate an earlier easing of lockdown restrictions. Apart to this, diminishing odds for any BoE interest rate cut could further underpin the British pound and help limit the downside for the major.
Meanwhile, the US economic docket highlights the only release of the Michigan Consumer Sentiment Index for February. This, along with the broader market risk sentiment and the US bond yields, will influence the USD price dynamics and allow traders to grab some short-term opportunities on the last day of the week.
Technical levels to watch
From a technical perspective, the pair has now slipped below the 23.6% Fibonacci level of the post-BoE strong move up and could extend the corrective slide. That said, any subsequent fall might still be seen as a buying opportunity and find decent support near an important resistance breakpoint, around the 1.3760-55 congestion zone. This coincides with the 38.2% Fibo. level, which should act as a key pivotal point for short-term traders.
Sustained weakness below could lead to some long-unwinding trade and accelerate the slide towards 50% Fibo. level, around the 1.3715-10 region. This is followed by the 61.8% Fibo. level support, around the 1.3685-80 zone, which if broken decisively should pave the way for a further near-term depreciating move.
On the flip side, immediate resistance is pegged near the 1.3830 level ahead of mid-1.3800s. Some follow-through buying will be seen as a fresh trigger for bullish traders and push the pair towards the 1.3900 mark. The momentum could further get extended towards the 1.3940-50 intermediate hurdle before the pair eventually aims to reclaim the key 1.4000 psychological mark for the first time since April 2018.
After a choppy trading session in New York, bulls had the last word and helped US stocks renew record – which actually has become the routine. I am more worries when there is no record on the session now. Nasdaq closed above 14000 as technology stocks led gains. Disney results beat analyst estimates joining the club of our favorite pandemic-boosted tech stocks that have more to offer.
But trading in European and US futures hint at a flat-to-negative start on Friday.
One other hot stock of the moment is Bumble, which had a great IPO yesterday. The new online dating app which differentiates itself by letting women make the first contact apparently filled a most-needed gap in the industry as investors rushed to the stock as it went public and pushed its value to $70 per share, compared to 50 million shares sold on Wednesday for $43. The rally we saw in Bumble could be backed by two theories. First, it’s really a promising business and investors love it. Or, there is a rally in anything that comes up these days and Bumble went public at the right time, a time when investors don’t even ask whether a company is worth being bought. They just buy betting on a price surge for anything and everything in the market.
On the political front, it’s surprising that news that Joe Biden’s and Xi Jinping’s first contact didn’t worry investors too much. According to Reuters, the phone call between the two leaders lasted about two hours and the conclusion was Biden telling reporters that ‘they’re going to, if we don’t get moving, they are going to eat our lunch,’. These words probably cement the new season of Cold War between the two countries and should further weigh on global growth prospects. And because the Federal Reserve (Fed) is already ultra-supportive, there isn’t even a reason to cheer the bad news. This time, the back of the coin is also as bad. Also, a couple of weeks ago Janet Yellen was criticizing China for its abusive conduct. As such, Biden administration sets the tone that the trade war is no where near easing and yes, it could cost the lunch and even the dinner for both parties. The latter remains a risk hanging in air for global equities and should weigh on stock valuations as soon as investors decide to look over their rose glasses to see that the reality is not as rosy.
Bitcoin’s journey to sky continues on news that MasterCard and Bank of New York Mellon will now facilitate Bitcoin transactions. Of course, if you buy a Tesla with Bitcoin, it’s good to be able to pay with Mastercard.
The latter is great news for cryptocurrencies even though, Bitcoin remains a good alternative investment instrument, which is way too volatile to be spent in exchange of goods or services for now.
Mastercard gained 2.69% as investors greeted the futuristic and bold move, as there is still not a solid legal framework covering the cryptocurrencies.
One last word on the Reddit-induced cannabis stock rally. Yesterday, the cannabis stocks’ prices went tumbling from sky highs, even though the market sentiment was not too bad elsewhere. So, the Reddit bubble remained short-lived and again, at the expense of last comers.
But there is a big difference between GameStop and cannabis stocks. Cannabis is an almost $350 billion global industry which grows larger every single day AND a couple of players only. What separates the cannabis frenzy from GameStop is, there actually is potential for a further, substantial and sustainable boom in this industry and the price correction that we see by the end of the Reddit episode should not be a demoralizer but an opportunity. Still it could be too early to jump on the rocket just yet.
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