Cable slumps to three-week low amid dollar strength

GBP/USD falls to 1.3800 for the first time since 12 February

GBP/USD D1 05-03

It has been quite the fall from grace for cable after having hit a high of 1.4237 last week.

The pound lost ground and cable fell back under 1.4000 and has struggled to get back above that this week, before extending its decline in the past few sessions.

The drop today sees the pair slide by 95 pips to test the 1.3800 level currently as sellers are closing in on the 12 February low @ 1.3776 as well as the broken trendline resistance – now turned support – @ 1.3780.

As much as the market has been betting on a stronger pound in the first two months of the year, there are better trades (vs CHF, JPY) to capitalise on that if one is to try and stick with the optimistic backdrop of the UK economy towards 2H 2021.

For now, cable is definitely not one of those as the dollar returns to favour with the Fed giving the green light for further gains as other central banks are battling their own demons in trying to keep bond yields from surging higher.

A push back below the support levels highlighted will then put the spotlight on a key support trendline stretching all the way back to June last year, closer to 1.3700 for cable.

Given how things are playing out right now, I wouldn’t rule out a stronger run in the dollar until we get to the FOMC meeting later in the month (17 March).

That could spell trouble and more downside for cable if the drop here runs through 1.3700, paving the way for a potential test of the 100-day moving average (red line).

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By Jonathan Prop

Jonathan Prop is an independent financial advisor. He has been working in finance for the last 20 years. After retiring early in his 40s, Jonathan decided to help others get to grip with financial markets, particularly his area of expertise - forex!

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