Big Breakout in GBP/USD

Big Breakout in GBP/USD

Big Breakout in GBP/USD

For the first time in more than a month GBP/USD broke above 1.45 and while it did not close above that rate, the currency pair has broken to the upside and now a move to 1.46 seems likely. Although part of today’s move can be attributed to the improvement in the CBI industrial trends survey, the main reason for the currency’s strength and its complete disregard for recent data disappointments is Brexit. Leaving the European Union poses significant risks for the country and the region as whole but with traders spending the better part of the year taking on Brexit bets, what we’ve seen in recent weeks is widespread short covering. With less than 2 months to go before the E.U. referendum, positioning is playing a very big role in the performance of the pound. Recent U.K. data has been terrible but instead of falling, sterling rallied as investors reduced their short positions. While it may seem counterintuitive they are interpreting every negative headline as a reason for voters to favor remaining in the European Union. That includes President Obama’s latest warning that it would take the U.K. a decade to negotiate a free trade deal with the U.S.

Technically, the latest move in GBP/USD takes the pair firmly above the 100-day SMA for the first time since September. Today’s high of 1.4520 marks near term resistance but 1.4640 and 1.4670 is the primary area of resistance. Support on the other hand is below the 100-day SMA at 1.4400.

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