Trading the Cable: Events Shaping the GBPUSD Pair

The GBP/USD currency pair is trading at 1.2961, down slightly at the start of the new week. The 52-week trading range of the cable is 1.1995 on the low end and 1.3443 on the high-end. Based on the current Forex chart, the GBP/USD pair is fractionally higher than its 50-day moving average of 1.2930, and higher than the 200-day moving average of 1.263. The GBP/USD pair is trending bearish, given the declines since August 3, 2017 when it was trading at 1.3233. The critical 1.3000 support handle has been breached, and currency traders expect the current 1.2900 handle to hold over the short-term.

Rising DXY and Plunging Demand for Safe-Haven Assets

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The declining GBP/USD is being countered by a rising . The 52-week trading range of the US dollar index is 92.55 on the low end and 103.82 on the high-end. The current level of the US dollar index is 93.37. Over the past 5 days (August 14, 2017), the US dollar index has depreciated by just 0.09%. The year to date declines for the US dollar index have also shrunk from over 9% to the current 8.82%. Over the past 1 month, there have been anaemic declines in the US dollar index of just 1.87%. Viewed in perspective, the performance of the US dollar has improved marginally, while that of the GBP has declined. The US dollar index measures the greenback against a basket of 6 currencies, including the SEK, CHF, CAD, GBP, EUR and JPY.

The USD continues to rally as concerns over North Korea simmer down. Leading US officials have calmed tensions between the world’s #1 superpower and its arch nemesis, North Korea. Top officials including Secretary of State Rex Tillerson and Jim Mattis – Secretary of Defense – wrote an op-ed in the Wall Street Journal that the Trump administration seeks a diplomatic solution to the North Korean crisis. The goal is not war, but the denuclearization of the region. The USD enjoyed a growth spurt on Monday morning as Wall Street bourses rallied with this news.

Important Barometers of USD Performance

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There are several powerful indicators of market sentiment, including the performance of gold and the Japanese Yen. When geopolitical tensions are mounting, both indicators display bullish tendencies. By Monday morning 14 August 2017 – the Japanese Yen, the Swiss franc, and the price of gold retreated. Gold is currently trading at $1,287.90 per ounce, down 0.47% over the past 2 days on the Comex. The Japanese Yen also retreated against the greenback as diplomacy trumped bellicose rhetoric. Trading on other currency pairs such as the GBP/USD and the EUR/USD also showed bearish tendencies at the start of the week.

There are several important economic indicators coming up in mid-August 2017, notably the retail sales figures for July and the on Wednesday, 16 August 2017. The Federal Funds Rate has been maintained at the current 1.00% – 1.25% level. The FOMC (Federal Open Market Committee) has not pulled the trigger on rates, pending an increase in the inflation rate towards the 2% objective. The Fed also seeks the attainment of the full employment objective. Details of the Fed decision will be an important barometer of trading direction for the USD moving forward.

experts advise clients to keep their fingers on the pulse of market sentiment. ‘North Korea remains front and center in the ongoing war of words in geopolitical circles. Any ratcheting up of tensions between US president Trump and Kim Jong Un will destabilize financial markets and lead to a rush on safe-haven assets. Gold is one such commodity that will benefit from increased tensions. The 30-day performance of the precious metal is up 4.45%. Even the recent gains in Bitcoin price – over $4200 – are due in large part to tensions in Asia. Japan has been actively buying Bitcoin in huge numbers. We may see reversals in these trends as tensions simmer down in the Korean peninsula.

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