Following a recent surge, the US dollar retraces some of its gains. To anticipate potential future movements, let's look at two key currency pairs – the British pound against the US dollar (GBP/USD) and the Australian dollar against the USD (AUD/USD).
GBP/USD trades back into its month-old rectangle pattern
The GBP/USD pair has traded back into the rectangular pattern that kept the price trapped from December 14th until earlier this week, when a sudden drop of around 80 pips occurred, causing it to trigger a new downtrend.
As the price is today back in the pattern, the price will likely remain short-term bullish and might to reach the midpoint of the pattern. However, the dollar's strength against most major currencies suggest that we will not trade to the other side of the range, and that bears are likely to use a bounce to add to their bearish exposure. With this trend in mind, the GBP/USD pair may increase slightly, reaching 1.2700. However, as long as it remains below 1.2780, the downtrend persists.
Why could GBP/USD trade higher in the short term?
The potential for upward GBP/USD is supported by the relatively subdued corrections seen in EUR/USD. Despite minor rebounds, the Euro remains close to its lows from last Friday. While a slight increase towards 1.0830 is conceivable, a downward trend towards 1.0700 and 1.0650 is likely in the coming weeks. The downtrend in EURUSD will remain in play as long as we trade below 1.09.
Fundamental Outlook
Robust US economic data further reinforces this sentiment, as evidenced by last Friday's non-farm payrolls report, which exceeded expectations with 383,000 new jobs added. The recent Federal Reserve meeting also indicated a more cautious approach than initially anticipated. And earlier this week, the ISM Services indicator surged above expectations and reached 53.4.
Turning our attention to the AUD/USD pair, the prevailing trend remains bearish below 0.6622. The market could attempt a bearish reversal between 0.6541 and 0.6225, targeting lows such as Monday's 0.6467 and November's 0.6336. However, like for GBPUSD, we can’t rule out further short-term gains in AUDUSD, mainly if EUR/USD manages to recover more of its losses following last Friday's non-farm payrolls report.
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