GBP/USD has attempted to break above resistance at the 1.2500 level in recent trading but, thus far, the effort has failed, as the pair has backed off from this resistance and is currently trading at 1.2434, down 0.46% from Tuesday’s North American close.
A sustained move above 1.2500 is required to turn the near term outlook for the pair more positive 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.
However, the continued struggle against 1.2500 suggests the probabilities favor a drop back down to first support at 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.
A decline below this level would leave the target at the lower boundary of the trading range at the 1.2083 level, followed by the low of the flash crash at 1.1950.
GBP/USD has failed to muster any sustained upward momentum in recent sessions, as reflected by the flat reading on the Stochastic, a price momentum indicator. And, the indicator has recently triggered another sell signal.
In today’s news, the Bank of England’s Financial Stability Report indicated UK financial stability risks remain elevated, while the Royal Bank of Scotland failed the stress test with failure to meet Tier 1 capital target under adverse conditions and will need to raise fresh capital. There were also short comings in Barclays and Standard Chartered, although the banks have already taken action and they did not fail the tests.
Later in today’s trading, the US ADP employment report for November is expected to show an increase of 160K jobs, from 147K last month, while Chicago PMI is forecast to rise to 51.8 from 50.6. Pending home sales and the Fed’s Beige Book are also due out today in the US.
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.
GBP/USD Daily Chart