Risk ON sentiment remains the dominant theme this morning with a focus on value stocks and other assets sensitive to rise amid ongoing optimism about more normal times ahead with the rolling out of Covid vaccines. In FX, the pound continues to outperform after a no-deal Brexit was prevented at the back end of last year. Sterling has been given a further lift by ongoing risk rally, which is helping the GBP/JPY to test fresh multi-month highs
this morning and the GBP/USD is nearing its 2020 high at 1.37ish. There is not a lot on the agenda on the macro front with Eurozone Industrial Production coming up at 10:00, followed by US CPI at 13:30 and US oil inventories at 15:30 GMT.
With the pound starting to look strong at the start of this year, I reckon it could be among the best-performing major currencies in the months ahead now that a no-deal Brexit has been avoided. With the UK also being among the first countries to roll out the Covid vaccines, this could see the economy rebound sharply once lockdowns end, providing sterling an additional boost.
It is also pointing out the fact that the FTSE could be in for a major breakout after spending the last few years inside of a large corridor between 1.20ish and 1.40ish. This side-ways consolidation was due to Brexit uncertainty, but now that this cloud has been lifted, we could be in for move outside of this large range. This makes the pound even more appealing in my view.
As I pointed out the possibility earlier this week HERE
, the GBP/USD managed to hold and then bounced from around the key 1.3480 support area. With the bulls having defended their ground successfully, this means that the path of least resistance continues to be to the upside:
Source: ThinkMarkets and TradingView.com
From here, the next potential upside target is last year’s high at 1.37ish. If we break and hold above this area then the next upside targets would be the round handles at 1.38 and 1.39, with the psychologically-important 1.40 handle being the ultimate near-term objective. But as I said, the rally could extend to significantly higher levels over time. For those looking to sell the pound, I currently do not see much technical reasons to do so given the overall bullish price action. The bears will certainly need to see a proper break down in the market structure of higher highs and higher lows first.
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