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GBP/USD: Weekly Forecast 27th August - 2nd September

The GBP/USD will open for trading early Monday near the 1.25770 this after the currency pair challenged the 1.28000 level upwards on Tuesday of last week. Day traders were reminded once again in an impolite manner by Forex markets, that in order to survive and profit as a currency speculator tough skin and strong emotional fortitude are needed. The technical perceptions a trader has regarding support and resistance levels are features that often prove difficult to use favorably when trying to make short-term decisions unless some dose of behavioral sentiment is being considered.

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    After touching the 1.28000 level on Tuesday and potentially sparking the interest of bullish retail traders, who may have perceived this higher value as a signal the GBP/USD was finally going to create stronger upward momentum, the currency pair essentially began to dive lower. Traders looking for correlations can certainly see the USD has been strong against most major currencies the past month, but finding exact reasons as to why the USD has emerged again with so much strength may be confusing.

    Short-Term U.S Treasuries are a Culprit for GBP/USD Bullish Traders

    U.S. economic data like its counterparts globally, has been lackluster in many respects. The U.S Federal Reserve within the confines of its Jackson Hole Symposium late last week reaffirmed it will not raise interest rates in the mid-term most likely. However, the Federal Reserve via Jerome Powell speaking to a crowd of onlookers did say, interest rates would remain high for the foreseeable future.  The U.S. Fed Chairman also said the U.S. central bank reserves the ability to respond with higher interest rates if needed.

    But wait a second, I just wrote U.S. economic data has been lackluster in the above paragraph. However, the Federal Reserve apparently via its rhetoric is warning major financial institutions and corporations they are paying attention to a U.S. economy they still fear could spark a surprise regarding potential inflation. In other words, by saying interest rates will remain high there is little chance the Fed will suddenly become dovish, the U.S. central bank has created a monster regarding the purchasing of short-term 2 to 5-year U.S. Treasuries via financial institutions who are looking for guaranteed yields. To buy U.S. Treasuries you need to use USD, especially when buying them from countries outside of the States.

    Traders of the GBP/USD Should Look at Charts of U.S Treasures from the Past Five Days

    • The direction of the GBP/USD has moved in an inverse (opposite) direction to short-term U.S Treasuries of 2 to 5-year lengths over the past five days of trading.
    • Forex markets including the GBP/USD are hurting speculators who are betting against the USD in the short term. The fall of the GBP/USD late last week correlates to the higher yields of U.S Treasuries.
    • Nervous behavioral sentiment remains strong and has created volatile conditions for the GBP/USD.

    GBP/USD Weekly Outlook:

    The speculative price range for GBP/USD is 1.24920 to 1.27260

    Falling below the 1.26000 level for the GBP/USD late last week may have shocked many speculators. The currency pair is now trading at lows it has not seen since the second week of June, when the GBP/USD was starting to recapture some of its buying power, and eventually touched the 1.31450 level on the 13th of July. The volatility of the GBP/USD in the past two and half months of trading has been startling even to experienced Forex traders.

    Nervous sentiment remains high and economic data this week will come from the U.S. which will finish with jobs numbers this coming Friday. However, as the week begins tomorrow, some traders are likely to remain confident the GBP/USD is now vastly oversold. The problem with chasing upward momentum is that it can become very expensive if proper risk management is not being used. This week of trading in the GBP/USD will likely mirror broad market conditions and while speculators may not believe the GBP/USD can go much lower, they should remember the currency pair has done so in the past. Short-term considerations should be kept with nearby targets and quick-hitting perspectives this coming week in the GBP/USD.


    Robert Petrucci
    About Robert Petrucci
    Robert Petrucci has worked in the Forex, commodity, and financial profession since 1993. Important aspects of his work involve risk analysis and advisory services. As an advisor in a Family Office he maintains a conservative approach for wealth management and investments. Robert also works in private finance with investors and companies delivering financial and management services.

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