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GBP/USD Puts Pair at Most Overbought in Over Two Years

GBP
  • The winning streak in GBP/USD extends to six consecutive sessions, with spot convincingly clearing 1.30 to put prices at the best levels since April last year - opening next levels of resistance at the Apr21 high of 1.3090 and the 1.00 projection of the May 25 - Jun 16 - Jun 29 price swing.
  • On a technical basis, the GBP/USD run higher is now comfortably overbought. The 14d RSI has been boosted to 75, making the pair the most overbought since Feb'21 - where GBP/USD underwent a sharp rally from ~1.37 to ~1.42 - as the currency benefited from fading expectations of BoE NIRP as well as government planning for an end to COVID lockdowns. Back then, the subsequent unwind of the overbought condition saw the pair shed 4% over the next calendar month.
  • A similar response this cycle would see the pair return to test support at the 50-dma of 1.2609 - a move that would likely have to be predicated by a significant downward repricing of Bank of England rate hike expectations - the peak rate remains above 6.00% in OIS terms, although has moderated considerably (over 50bps) off the cycle highs pre-nonfarm payrolls last week.
  • This week's spot rally has forced markets to significantly mark up the implied odds of further GBP/USD strength into year-end. Options markets now imply a 25.6% chance of spot above 1.35 by year-end (and 8.3% above 1.40), up from 13.2% and 3.9% this time last week.

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