Forex Market: GBP/USD daily trading outlook

Friday’s trade saw GBP/USD within the range of 1.4247-1.4431. The pair closed at 1.4258, plummeting 1.08% on a daily basis, or at the sharpest rate since November 5th, when it fell 1.15%. It has been the 8th drop in the past 10 trading days. The daily low has been the lowest level since May 20th 2010, when a low of 1.4229 was registered. In weekly terms, GBP/USD lost 1.80% of its value during the past week, while marking its third consecutive weekly decline and also the sharpest one since the week ended on December 20th. Back then it depreciated 2.12%. The pair has fallen 2.96% so far during the current month, following two consecutive months of decline.

At 9:27 GMT today GBP/USD was gaining 0.32% for the day to trade at 1.4303. The pair touched a daily high at 1.4322 at 8:33 GMT and a daily low at 1.4248 at 7:45 GMT. Support may be received in the area around the low from January 15th (1.4247) and then – in the area around the low from May 20th 2010 (1.4229). Resistance, on the other hand, may be encountered at the current daily high (1.4322) and then – at the hourly 55-period EMA (1.4341).

No relevant macroeconomic reports and other events, which may influence GBP/USD trading, are scheduled on Monday.

M.L.King’s Birthday Holiday

Today is Martin Luther King’s birthday holiday in the United States. Banks in the country are to remain closed.

Correlation with other Majors

Taking into account the week ended on January 14th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:

GBP/USD to AUD/USD (0.9185, or very strong)
GBP/USD to NZD/USD (0.8493, or very strong)
GBP/USD to USD/JPY (0.7200, or strong)
GBP/USD to USD/CHF (-0.1225, or weak)
GBP/USD to EUR/USD (-0.8968, or very strong)
GBP/USD to USD/CAD (-0.9715, or very strong)

1. During the examined period GBP/USD moved strongly in one and the same direction with USD/JPY.

2. GBP/USD moved almost equally in one and the same direction with NZD/USD and AUD/USD during the past week, while moving almost equally in the opposite direction compared to EUR/USD and USD/CAD. This relationship has been the most pronounced between GBP/USD and USD/CAD.

3. The correlation between GBP/USD and USD/CHF was insignificant during the period in question.

Bond Yield Spread

The yield on UK 2-year government bonds went as high as 0.488% on January 15th, after which it closed at 0.440% to lose 5.3 basis points (0.053 percentage point) compared to January 14th. It has been the 13th drop in the past 22 trading days and also a second consecutive one.

The yield on US 2-year government bonds climbed as high as 0.903% on January 15th, after which it closed at 0.850% to lose 4.9 basis points (0.049 percentage point) compared to January 14th. It has been the 15th drop in the past 23 trading days and also a fourth consecutive one.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, expanded to 0.410% on January 15th from 0.406% on January 14th. The January 15th yield spread has been the largest one since January 13th, when the difference was 0.416%.

Meanwhile, the yield on UK 10-year government bonds soared as high as 1.730% on January 15th, after which it closed at 1.664% to lose 7.1 basis points (0.071 percentage point) compared to January 14th. It has been the 15th drop in the past 22 trading days and also a fourth consecutive one.

The yield on US 10-year government bonds climbed as high as 2.101% on January 15th, after which it slipped to 2.037% at the close to lose 5.4 basis points (0.054 percentage point) compared to January 14th. It has been the 14th drop in the past 23 trading days.

The spread between 10-year US and 10-year UK bond yields widened to 0.373% on January 15th from 0.356% on January 14th. The January 15th yield difference has been the largest one since January 11th, when the spread was 0.396%.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:

R1 – 1.4275
R2 – 1.4292
R3 (range resistance) – 1.4309
R4 (range breakout) – 1.4359

S1 – 1.4241
S2 – 1.4224
S3 (range support) – 1.4207
S4 (range breakout) – 1.4157

By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:

Central Pivot Point – 1.4371
R1 – 1.4494
R2 – 1.4731
R3 – 1.4854

S1 – 1.4134
S2 – 1.4011
S3 – 1.3774