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Dollar rebound unlikely to hold especially against GBP

Fawad Razaqzada Fawad Razaqzada 11/01/2021
Dollar rebound unlikely to hold especially against GBP Dollar rebound unlikely to hold especially against GBP
Dollar rebound unlikely to hold especially against GBP Fawad Razaqzada
It is going to be a relatively quieter week from a macro point of view, allowing investors to ponder over any emerging investing and trading themes. I am of the view that the dollar’s rebound is likely to be short-lived and think the pound could be the star performer in 2021. So, if I had to choose one particular dollar pair to be the most optimistic about in 2021, it would have to be the GBP/USD.

Last week, the dollar rebounded along with bond yields, causing gold and silver to drop sharply, as investors started to wonder about the timing of the first interest rate rise amid the ongoing vaccine roll out.

It looks like the markets have brought forward their expectations for the first rate hike from the Federal Reserve to the second half of 2022. However, this is a reflection of investor optimism about more normal times ahead and so I believe it may be far too early to start worrying about the negative side effects of rate hikes on risk assets. The ongoing situation with the virus and lockdowns means central banks will be in no rush to exit their loose policies and more fiscal support could be on the way under the Biden administration, after the Democrats secured control of the Senate.

For that reason, I believe the dollar’s rebound is likely to be short-lived and the reflationary trade will likely keep a floor under commodity dollars and emerging market currencies, reducing the appeal of haven US dollar.

Pound likely to be star performer in FX

Meanwhile, now that a no-deal Brexit has been avoided, the pound is also likely to be supported on dips. With the UK also being among the first countries to roll out the Covid vaccines, we could see an accelerated rebound in the economy once lockdowns end. This makes the pound appealing in my view and could be the currency to watch out for in 2021 after years of side-ways consolidation amid Brexit uncertainty.

GBP/USD testing key support

After Friday’s selling and some further downside follow-through at the start of today’s session, the GBP/USD has now dropped to test THIS key support area around 1.3480-1.3500:

GBP/USDSource: ThinkMarkets and TradingView.com

As per the chart, this is where the 2019 high converges with prior support and resistance and the 21-day exponential. In my view, it is likely that cable may be able to form a potential low around the current levels. But for confirmation, it may be best to wait for it to do so and print a bullish-looking candle on the daily chart here before looking for potential trading opportunities.

One technical reason why I don’t think the trend has turned bearish on the GBP/USD yet is the fact price is still holding inside the bull channel. But if and when it breaks out of it to the downside, then at that point I will drop my short-term bullish view on this pair.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
×
Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
×
Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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