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GBP/USD – Focus on UK PM May’s speech & yield differential

GBP/USD – Focus on UK PM May’s speech & yield differential

GBP/USD was offered on Friday on fears that UK Prime Minister Theresa May would be forced out of her party. The currency pair dropped to a low of 1.3027 on Friday and ended the week at 1.3064 levels.

A key trend line support has been breached

Friday’s close (weekly close) was below the trend line sloping upwards from the March low and June low.

The pair strengthened in early Asia on reports that lawmakers in British Prime Minister Theresa May’s Conservative Party who are trying to oust her as leader have been told to “shut up” by senior party members, including potential rival Boris Johnson, Britain’s foreign minister. However, the bullish move stalled around 1.3090.

Focus on PM May’s speech

UK PM Theresa May will use her speech in the House of Commons today to urge both sides to show “flexibility” over Brexit. The British Pound may rise across the board if May’s speech is well received by her party members.

US-UK yield spread widens

  • The yield differential or the spread/difference between the US 10-year treasury yield and the UK 10-year gilt yield widened to 100 basis points on Friday from Thursday’s print of 96 basis points.
  • The uptick in the yield spread is supportive of the US dollar, although week-on-week, the spread is largely unchanged, which indicates GBP sell-off may have been overdone.

US markets are closed today on account of Columbus Day, thus trading volumes could be thin.

GBP/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes-

“Cable’s decline is far from over, according to technical readings in the daily chart, as technical indicators maintain their strong downward momentum. However, indicators are nearing oversold readings, pretty much straight from overbought conditions, reflecting the violent decline and indicating that an upward corrective movement is possible. The key is the 1.3000 psychological threshold, as a break below the level will close the doors for further recoveries. Shorter term, and according to the 4 hours chart, technical indicators consolidate within oversold territory, whilst the 20 SMA maintains a sharp downward slope above the current level, limiting chances of an upward correction in the near term.”

 

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