GBPUSD once again fails to maintain rally

The Friday reversal in the USD back to the weak side was impressive, but sterling is once again failing to maintain altitude against the greenback as the focus in GBPUSD remains lower.

Last Friday’s economic data out of the US was given some credit for the USD sell-off, but on second look, it appears that the rally had more to do with a reassessment of the market’s stance on the Euro, as the Euro rallied strongly against both sterling and the USD. In any case, without Euro systemic risk downside, it is extremely difficult to gin up any reason to be long the pound, where the economy is weak and the central bank remains very accommodative at every turn.

Chart: GBPUSD
Cable has been stuck in a narrow range for the longest time now, and consistently finds resistance at the 200-day moving average area above 1.5700. The Friday bullish reversal of the previous day’s action looked impressive, but that reversal appears to be in danger of finding itself reversed in turn. In general, the USD has a difficult time rallying against anything as risk appetite remains on, but so does the pound, and the pound will only be able to put up a fight against the USD if both the Euro risk trade is on AND risk appetite are on – a difficult combination to maintain (but one we saw for parts of the last couple of months). I continue to focus on the downside risks in GBPUSD, but those will only come into full swing when the equities stop posting new highs for the cycle with metronomic regularity.