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GBP/USD Corrective Bounce Extends Into Second Session

FOREX
  • The recovery off breakout lows for GBP/USD has extended into a second session, coinciding with some very moderate slippage in the greenback. GBP/USD's two-day rally puts spot back toward the Monday high of 1.2640 as price re-enter the early 2024 range and erase the range breakout posted earlier in the week. We noted yesterday that FX options markets had been generally quiet, however GBP hedging was an exception - upside demand was evident via decent sized calls trading with 1.2565, 1.2660 and 1.2850 strikes. Nonetheless, GBPUSD bearish conditions remain intact, with the current recovery deemed corrective.
  • BoE MPC members Breeden spoke earlier to confirm her tightening bias has shifted since December, with her focus - along with many other on the MPC - shifting to how long rates should be held at current levels.
  • This sees GBP the firmest currency in G10 alongside SEK, while JPY and CHF are the poorest performers. A phase of CHF weakness followed the publication of FX reserves data for January, which ticked up to 662.4bln from 653.7bln. Revaluation factors are likely at play, however EUR/CHF remains on track to test the downtrending 50-dma of 0.9404.
  • Trade balance data marks the calendar highlight Wednesday, with Canadian and US numbers for December due. Central bank speakers are set to include Fed's Kugler, Collins, Barkin and Bowman of the FOMC, while some attention may also be paid to appearances from Fed's Remache and Nordstrom who, while not monetary policymakers, oversee the Fed's SOMA and international markets functions at the NY Fed.
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