POUND STERLING ANALYSIS & TALKING POINTS
- UK public sector debt remains high.
- Fed officials scheduled to speak later today.
- Symmetrical triangle breakout potential on GBP/USD daily chart.
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GBP/USD FUNDAMENTAL BACKDROP
For the month of October the UK public sector (see economic calendar below) spent more than it collected resulting in the fourth highest borrowing in said month. The natural economic reaction behind elevated debt levels is to increase interest rates in order to compensate investors for the risk of default. Hence the immediate reaction by the sterling was to push marginally higher due to the traditional positive correlation between interest rates and currency strength. This being said, additional aggressive interest rate hikes are unsustainable for the UK economy in respect of recessionary fears and already elevated rates.
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Later today, Fed speakers dominate the docket with the most aggressive being Mr. Bullard who will likely maintain the hawkish narrative seen over the last week or so. This could prompt further weakness in GBP/USD considering sustained concerns around the UK’s public finances.
GBP/USD ECONOMIC CALENDAR
Source: DailyFX Economic Calendar
TECHNICAL ANALYSIS
GBP/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Daily GBP/USD price action has been trading within a developing triangle formation and is looking to breakout in the near term. Fundamentals suggest a push below triangle support towards the 1.1738 swing low and beyond but could be invalidated by the less likely candle close above triangle resistance.
Key resistance levels:
Key support levels:
BEARISH IG CLIENT SENTIMENT
IG Client Sentiment Data (IGCS) shows retail traders are currently SHORT on GBP/USD, with 54% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning, we arrive at a short-term downside bias.
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