Sterling continues to rally versus the dollar in today’s trading, as GBP/USD is now up against resistance at the 1.2500 area. This level has been tested on numerous occasions since mid-November. The pair is currently trading at 1.2517, 0.81% over Monday’s North American close.
A sustained move above 1.2500 is required to improve the near term outlook for the pair and suggest a follow through advance to the November 11th high at 1.2674 is possible. Among the major currencies, sterling is currently holding up best versus the dollar.
Sterling benefited this morning following the release of strong consumer lending data from the Bank of England. At the same time, the dollar is off the highs of the session, having come under pressure following the release of the second estimate of third quarter US GDP, which showed growth was revised up to an annual rate of 3.2%, versus consensus estimates of 3.0%, from 2.9% in the advance estimate. The dollar peaked at 101.64 as the data was released and has since been under pressure, currently trading at 101.07, down marginally on the day.
The dollar also failed to benefit from the release of US Consumer Confidence. The Conference Board reading of consumer confidence increased sharply to 107.1 from an upwardly revised 100.8 for October, which was originally reported as 98.6. This was the highest reading since the middle of 2007.
It could be that the dollar is reacting to what remains a heavily overbought condition and may extend a period of consolidation over the near term in an effort to work off the overextended condition. The dollar remaining under pressure will benefit GBP/USD.
A failure of GBP/USD to clear 1.2500 on a sustained basis would keep the pair vulnerable to a near term return to the November 18th 1.2300 low, which represents a test of the upper boundary of the trading range which encompassed price action following the October 7th flash crash in the sterling.
The latest Commitment of Traders report from the CFTC was released on Monday, with data as of the November 22nd close. The report indicated that large speculators decreased short positioning in British Pound futures by 6,027 contracts and decreased long positioning by 32 contracts. Current net short positioning now stands at 74,318 contracts. The decrease in net short positioning was the largest among the major currencies last week and represents the second consecutive weekly reduction in short positioning.