Forex Market: GBP/USD daily trading outlook

Friday’s trade saw GBP/USD within the range of 1.4878-1.4948. The pair closed at 1.4933, going up 0.11% on a daily basis, while marking its third consecutive trading day of increase. The daily high has been the highest level since December 18th, when the cross registered a high of 1.4951. In weekly terms, GBP/USD added 0.26% last week, following a 2.12% slump in the week ended on December 20th. The latter has been the most considerable weekly drop since the week ended on November 8th, when the pair lost 2.46% of its value. GBP/USD has fallen 0.88% so far during the current month, following a 2.42% plunge in November.

At 9:22 GMT today GBP/USD was up 0.05% for the day to trade at 1.4928. The pair touched a daily high at 1.4935 during early Asian trade and has been holding within a relatively tight range since todays open in Asia. Resistance may be encountered at the high from December 18th (1.4950), while short-term support may be received at the hourly 21-period Exponential Moving Average (1.4915).

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

Correlation with other Majors

Taking into account the week ended on December 27th 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 NZD/USD (0.5050, or strong)
GBP/USD to EUR/USD (0.4267, or moderate)
GBP/USD to AUD/USD (0.3267, or moderate)
GBP/USD to USD/CHF (-0.0641, or very weak)
GBP/USD to USD/CAD (-0.6278, or strong)
GBP/USD to USD/JPY (-0.7957, or strong)

1. During the examined period GBP/USD moved strongly in one and the same direction with NZD/USD, while moving strongly in the opposite direction compared to USD/CAD and USD/JPY.

2. GBP/USD moved almost independently compared to USD/CHF during the past week.

Bond Yield Spread

The yield on UK 2-year government bonds went as high as 0.638% on December 24th, after which it closed at 0.624% to lose 1.1 basis points (0.011 percentage point) compared to December 23rd. It has been the first drop in the past three trading days.

The yield on US 2-year government bonds climbed as high as 1.011% on December 24th, or the highest level since December 17th (1.017%), after which it closed at 1.006% to add 1.7 basis points (0.017 percentage point) compared to December 23rd. It has been the 20th gain in the past 29 trading days and also a third consecutive one.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, widened to 0.382% on December 24th from 0.354% on December 23rd. The December 24th yield spread has been the largest one in at least seven months.

Meanwhile, the yield on UK 10-year government bonds soared as high as 1.947% on December 24th, after which it closed at 1.923% to lose 2.1 basis points (0.021 percentage point) compared to December 23rd. It has been the 11th drop in the past 29 trading days.

The yield on US 10-year government bonds climbed as high as 2.266% on December 24th, after which it slipped to 2.245% at the close to lose 1.4 basis points (0.014 percentage point) compared to December 23rd. It has been the 18th drop in the past 29 trading days.

The spread between 10-year US and 10-year UK bond yields widened to 0.322% on December 24th from 0.315% on December 23rd. The December 24th yield difference has been the largest one since December 22nd, when the spread was 0.359%.

Daily and Weekly Pivot Levels

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

R1 – 1.4939
R2 – 1.4946
R3 (range resistance) – 1.4952
R4 (range breakout) – 1.4972

S1 – 1.4927
S2 – 1.4920
S3 (range support) – 1.4914
S4 (range breakout) – 1.4895

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

Central Pivot Point – 1.4894
R1 – 1.4987
R2 – 1.5040
R3 – 1.5133

S1 – 1.4841
S2 – 1.4748
S3 – 1.4695