Sterling bulls may have to wait for better times as the pound's usual defense against a robust dollar -- STIR futures pricing in higher UK rates -- proves no match for the dollar frenzy of the post-election Trump trade.
Traders rushing to accumulate dollars appear to be overlooking UK rate fundamentals, which may leave sterling enthusiasts following the prevailing long-USD trend and, at a minimum, exiting long GBP trades while the current dollar accumulation plays out.
GBP/USD is clinging to a slight gain of 0.6% year-to-date versus the dollar, while other major currencies are nursing relatively large losses versus the dollar.
On Tuesday, cable dipped below 200-DMA support at 1.2819 and key psychological level at 1.2800.
As year-end approaches, entrenched GBP longs are likely to cover positions, which may add additional downward pressure on the pound.
Should GBP/USD close below its 200-DMA, which has trailed price since mid-May, bears are likely to target 1.2666, the Aug. 8 low and coincidentally the last time GBP/USD tested 200-DMA support.
However, if the current dollar-buying frenzy were to abate and traders refocus on fundamentals, a rise above the falling 10-DMA at 1.2924 could stall the current slide.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
((paul.spirgel@thomsonreuters.com))
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