The Pound’s Santa Rally Continues

investing-So much for the pound’s rally having run its course in November, GBP/USD has taken another leap higher on Thursday. Technical traders may be getting excited by GBP/USD, which popped above the top of its daily Ichimoku cloud at 1.2643, it has cleared this hurdle this afternoon and GBP/USD is currently trading just below 1.27. Pound’s Santa Rally

So, is this move justified?

This is a difficult question to answer. The UK-US 10-year yield spread is falling deeper into negative territory, as US yields rise at a faster pace than UK yields. Thus, GBP/USD does not have a yield advantage that is driving this pair higher. Instead, we think that the rally in the pound is down to the market reducing its stretched short position in GBP/USD, which could give this rally legs, potentially back to the 1.30 level.
CFTC data, which measures speculative interest in the pound vs. the USD, has shown that short positions in GBP/USD have reduced for 6 out of the last 7 weeks, and it appears that this trend could continue. Due to this, we may see further upside for the pound in the coming weeks, due to the following factors:
Momentum: the reduction in GBP shorts is important to the future of the GBP rally. If we continue to see short positions getting scaled back, then the GBP may continue to rise on a broad basis. Momentum is particularly strong against

the yen and its recent performance has been staggering, GBP/JPY is up more than 14% since the start of November!

Political risks around Brexit are receding, as political risks elsewhere start to bite. The cost to insure UK sovereign debt has fallen sharply since spiking back in June.
Upside risks to growth after a positive Black Friday shopping season, and the potential for an increase in inflation in the coming months.
The technical indicators are also positive, we have already mentioned GBP/USD’s pop above the Ichimoku cloud earlier today, the next key resistance level for this pair is 1.2811 – the 100-day sma – and then 1.3055 – the 38.2% retracement of the June – October decline in GBP/USD, which is a major level of resistance.
However, we will keep an eye on the UK-US yield spread. If this continues to fall further into negative territory then GBP/USD may start to look fragile.
GBP/USD Daily Ichimoku Cloud ChartGBP/USD Daily Ichimoku Cloud Chart
Overall, the pound has stolen the mantle from the dollar as the king of the G10 FX world, and there is every chance that this rally has some legs, we think that 1.30 is a potential for this pair in the coming days.

The Author

Pramod Baviskar

Professional Market Trader And Owner Of Dalal Street Winners Advisory And Coaching Services. Working Since 2007 And Online Presence Since 2010. We Provide Highly Accurate And Professional 1 Entry And 1 Exit Future, Option, Commodity, Currency And Intraday Stock Tips On Whatsapp With Live Support And Follow Up.
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