Two problems existed for GBP/USD downtrend and the ability to gain momentum. The first is complementary pairs GBP/JPY, GBP/NZD and GBP/AUD skyrocked higher from their lowest depths. Rises from those three corresponding pairs was directly attributed to first the recent rise in UK wage data and second ancillary effects to the long list of BOE board members advocating rate hikes based on the elevated wage data. The June minutes revealed for example UK GDP would turn higher from 0.3 to 0.5, interest rates were priced for a 1/4 rise June 2016, Inflation would remain low over time but rise from minus 0.1 to + 0.1. Economically, rosy scenario exists in the UK. The combinations literally stopped GBP/USD from moving higher or lower as UK money markets were locked into rate rises.
GBP/USD is in correction mode as long as 1.5889 and 1.5877 holds. Both points are long lasting residual effects from the 1.7000 highs seen what? 1 year ago. The downtrend is alive, ongoing however quite slow in momentum. What assisted GBP’s downtrend speed was recent breaks at 1.5719, 1.5705 and 1.5694. Next downside breaks must be seen at 1.5626 to target tough support points in the lower 1.5500’s starting at 1.5549, 1.5534, 1.5514 and 1.5511. The big break in this series to gain speed is 1.5514. Next target becomes 1.5441.
Current GBP/USD price is balanced and yet has every ability to see far lower prices. Volatility is high at 2.8 and remained elevated for quite some time which means a spark hits GBP then its price will fly. Distance now exists from 1.5889 and 1.5877 so price is in a safe sell rally mode. What will crack the slow movement deadlock is poor economic news from the UK, a continuation of the Greek crisis or another world tradgedy from one of many hot spots waiting to explode. China is a good example, Should Yellen ever backoff from Fed Funds rising, then GBP flies higher provided it economic data holds and interest rates are priced higher. For now its short GBP.
Brian Twomey, Inside the Currency Market, btwomey.com