GBP/USD approaches 1.3700 as the US dollar drops further

• Improvement in risk sentiment weighs on US Dollar.
• GBP/USD rising after four consecutive days of declines.

The GBP/USD rose further during the American session and printed a fresh daily high at 1.3694. Cable is hovering around the daily high with the positive tone intact, on the back of a sharp correction of the US dollar.

The greenback accelerated the decline during the last hours as equity prices rose further.  In Wall Street, the Dow Jones is up by 0.80%, and the Nasdaq gains 0.50%. Higher US yields are not helping the dollar so far. The US 10-year yield is up 5% at 1.28%.

From a technical perspective, GBP/USD is about to test the 200-day moving average that is at 1.3699. The area around 1.3700 is the immediate resistance, followed by the 1.3750 zone. A slide back under 1.3635 should expose 1.3600 and the recent low.

GBP outlook

The recent decline in GBP/USD, according to analysts at Rabobank, may have then been accelerated by a deterioration in the technical picture.  “Last Friday cable broke down from an 8 day rising channel formation.  At the start of the week, it broke below the 200-day SMA.  Both of these were bearish signals.” They point out sentiment has also been undermined by dovish commentaries at the start of the week from two Bank of England (BoE) officials.

At Rabobank, they consider that if the USD strength is contained, “this should allow GBP/USD to crawl back to the 1.39 region.  This, however, would likely require a slightly less cautious outlook on policy from the BoE.”