Wall Street closed with broad gains after further assurance from Fed Chairman Powell that the central bank can continue to support the economy without stoking inflation. Concerns about a pick up in prices, weighed on sentiment in China, however, after data showed the fastest rise in factory prices since 2018.
Fed Chair Powell said the March jobs report was a taste of the brighter outlook, but again warned that the recovery is still incomplete in his comments on an IMF panel. Approximately 10 mln Americans remain out of work and millions will have a hard time finding their way back into the workforce. There are ongoing risks as the virus cases move up again. He added that the uneven vaccine rollout is also a risk. Meanwhile, he said the Fed continues to monitor inflation expectations carefully. This will be a period of temporarily higher prices, but he does not expect it to be a persistent inflation rise. He assured the Fed will react to an unwanted inflation jump. The main tool to combat inflation would be rate increases. The dovish outlook remains supportive for the markets with gains in both Treasuries and on Wall Street.
The USD has steadied after printing fresh lows yesterday, which has been concomitant with the 10-year US Treasury yield lifting back above 1.650% after yesterday posting a 2-week low just under the 1.630% mark. Cable, meanwhile, has dropped to a new 2-week low at 1.3668, while it retests nearly 2 month Support. The pound has at the same time sank to a fresh 6-week high versus the Euro and a 2-week low in the case against the Yen. Some narratives have been linking the UK currency’s notable underperformance this week to the blot-clotting concerns of the Oxford AstraZeneca Covid vaccine, though the yield correction in Gilts has been more pronounced than in some peers, including Bund and JGB yields, which is likely a stronger reason for sterling’s fall out of favour.
GBPUSD is struggling to tick higher after March reversal that brought the asset from 1.4250 area to 1.3668. The flattening however of the simple moving averages (SMAs), 50- and 200-day, are imposing the predominant neutral bias and not a negative outlook as the asset holds above 20-week SMA, sustaining also the 70% of 6-month gains. Additionally, the fairly positive demeanour of the Ichimoku lines is suggesting a phase where positive sentiment further tilting the scale in favour of the upside in the long term.
Downside risks keep lingering in the background according to the RSI and the MACD, as the former has slipped below its 50 neutral mark and the latter turned negative since mid March. Significant however is the fact that despite that the MACD lines are nearly a month now below 0, they sustain a move very close to zero implying that bullish bias is strongly looms.
Currently, the price is approaching the lower daily BB line, coinciding with the 38.2% Fibonacci retracement of the 1.2675 – 1.4250 up leg and the 2-month Support, at 1.3650. Should the bears drive below the 1.3650 Support, ta sharper decline could develop towards the 50.0% Fibonacci of 1.3460 and the year’s bottom. In the event of an upside reversal, the 20-day SMA around 1.3800 and the 1.3877 (upper trendline on months downtrend) may attempt to block the way towards the 1.40-1.41 barrier.
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Andria Pichidi
Market Analyst
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