Cable pares gains as dollar firms to start the session

Technical Analysis

GBP/USD falls back towards the 1.2200 handle

ForexLive

The pound had an impressive showing in trading yesterday, as cable rose from 1.1800 to 1.2200 as the dollar continued to falter across the board.

In early trading today, it was more of the same as the dollar slumped and cable moved up to test 1.2300 and the 50.0 retracement level @ 1.2306. Price did back off a little before we see the dollar firm currently to see a drop back towards 1.2200.

For now, the 50.0 retracement level remains a key line in the sand in limiting the upside move before buyers will be able to chase further upside towards 1.2500.

As the dollar is starting to show some fight, as evident with the dollar also reacting to key levels against the euro and yen, the recovery in cable this week may also be in jeopardy.

A fall back under the 38.2 retracement level @ 1.2095 will be particularly disheartening for cable buyers after the difficulty to get the momentum started over the past few days.

From a fundamental perspective, there are still many moving parts with the dollar side of the equation still finding some direction towards the end of the week and the pound having just moved off multi-decade lows in terms of valuation as well.

Then you have to consider the Fed action this week and how long that can contain dollar funding strains and the economic risks associated with the virus outbreak in the UK and also in the US. Also, let’s not forget about post-Brexit trade negotiations.

But for now, let’s try to keep things simple. The near-term bias in the pair remains more bullish with upside being limited at 1.2306. Keep below that and sellers have a firm area to lean on to try and put up a defense in the coming sessions.

A move above that will see buyers extend the momentum – likely towards 1.2500 next – before reassessing. The risk for any upside move for now is a fall back under 1.2100 and more importantly the 1.2000 handle.

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