GBP/USD battles psychological 1.2300, risk-on continues

Currently, GBP/USD is trading at 1.2300, down -0.92% on the day, having posted a daily high at 1.2415 and low at 1.2267.

Volatility goes wild in the foreign exchange markets as the Great British Pound gained +3.01%, but that was yesterday; today the story is different. Short-sellers showed up to erase GBP gains vs. the American dollar around the 1.2400 handle, then the pair retraced 140-pips from high to low after 'decent' US data readings. Later, during the NA session, long-pound traders and investors decided to make another attempt to retake the psychological 1.2300 level.

PM May's speech clarity; good enough for the pound?

Ben Yip, Senior Analyst at Amplify Trading, notes that the market has been in digestion mode this morning having seen one the biggest up days in GBP for 8-years yesterday following Theresa May’s speech on Brexit. The press has been littered with praise for the clarity provided by the PM and its knock-on impact it had on the Pound but I remain skeptical. For one yesterday’s move can not be solely put down to the speech itself and actually in the context of what has been the bigger macro driver of recent weeks, it was the comments from President-elect Donald Trump, regarding the overpriced USD, that maybe the bigger story here.

GBP/USD Forecast: holding ground, downside limited

He further writes, "As outlined in my briefing it was this latter factor that already had GBP on the front foot and coupled that with the highest UK inflation reading since 2014 means, it’s not hard to see why Cable rallied so aggressively."

Developed countries; GBP a 'safe bet'?

Bloomberg reports, "The so-called carry trade, in which investors borrow in countries with low rates to invest in higher-yielding assets, lost some of its appeal late last year as rising U.S. borrowing costs bolstered the greenback and Donald Trump’s election damped appetite for risk. Now the pound’s volatility, sparked by the U.K.’s move to pull out of the single European market, is making developing markets look like a relatively safe bet.

The report continues, “Sterling is as volatile as any emerging-market currency at the moment,” said Ben Kumar, the London-based investment manager at Seven Investment Management, which oversees about 10 billion pounds ($12 billion) and is adding to holdings in emerging-market local-currency bonds. “The currency risk is much easier to take than emerging-market currencies versus the dollar.”

GBP/USD Levels to consider 

In terms of technical levels, relevant upside barriers are aligned at 1.2415 (50-DMA), and above that at 1.2578 (100-DMA). While supports are aligned at 1.2266 (today's low), and below that at 1.1985 (post-gap low).

Ichimoku Cloud Analysis: GBP/USD, Gold