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GBP/USD - Doji signals bearish exhaustion, yield differential

GBP/USD dropped to an intraday low of 1.3409 on Tuesday on hawkish Yellen and concerns of a slowdown in the British economy. Cable ended flat lined at 1.3457.

Doji candle on the daily chart

Tuesday's Doji candle at 1.3449 (23.6% Fib R of 1.2774-1.3657) signals bearish exhaustion, i.e. the pull back from the high of 1.3657 has run its course. A bullish follow through today would revive the rally from the Aug 24 low of 1.2774.

Yield differential favor GBP

10-yr spread (sensitive to inflation expectations)

2-yr spread (sensitive to interest rate speculation)

The US-UK 10-yr yield spread and the US-UK 2-yr yield spread shows no improvement. The yield differential, as seen in the charts above, looks set to narrow further in favor of the British Pound.

A weaker-than-expected US durable goods data (due at 12:30 GMT) could lead to a narrower yield spread and a strong British Pound. Speeches from Fed's Bullard, Brainard and Rosengren could influence the dollar demand as well.

GBP/USD Technical Levels

Cable edged lower to 1.3440 in quiet Asian trade. FXstreet Chief Analyst Valeria Bednarik writes, "In the 4 hours chart, the price  has moved below a modestly bearish 20 SMA, whilst technical indicators are bouncing modestly within oversold readings, not enough to indicate and upcoming recovery. Renewed selling interest below the mentioned daily low, the pair has room to extend its decline down to 1.3320, the 38.2% retracement of the mentioned rally."

 

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