The US dollar is bouncing higher from oversold levels which has weighed on Sterling and other major currencies. GBP/USD reached a high of 1.3170 on Friday but has since retreated and was last seen approaching the 1.3000 level.
There was a notable divergence in rising virus cases in the US and the UK during July. The increase in new daily cases in the US rose steadily for most of July before peaking at 78 thousand near the end of the month. Meanwhile, new cases in the UK held steadily below 1000 throughout the month.
Since late July, daily new cases in the US have declined with yesterday’s data showing 48 thousand new cases. If this momentum in the US continues, it could pave the way for a broader dollar recovery.
However, there is a lot of data this week that also stands to move the markets. On Thursday, the Bank of England will make its latest monetary policy decision and Governor Bailey is scheduled to speak. On Friday, the US will release its latest Non-Farm payroll figures.
Considering the bulk of the market-moving events fall in the second half of the week, the dollar may extend higher in its recovery. GBP/USD may also be susceptible to some profit-taking, after a notable rally, ahead of the BoE meeting.
So far the dollar strength seen since Friday has resulted in about a 1% gain for the trade-weighted dollar index (DXY). This is not all that significant when compared to the previous decline.
If the dollar were to extend higher, however, it is likely to cause a break below the 1.3000 level in GBP/USD, which could pave the way for a broader decline.
Aside from its psychological properties, 1.3000 held the pair higher yesterday and some signs of buying activity is seen from the level ahead of the North American open.
A decline below 1.3000 accompanies a first target of 1.2900 with support in between at 1.2960. The upside hurdle in GBP/USD comes at 1.3100. A break above it would tend to renew the prior upside momentum.
- GBP/USD is threatening the 1.3000 level, a break below it offers a bearish near-term signal.
- The Bank of England meets on Thursday and US jobs figures will be released on Friday.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
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