The evidence currently suggests that GBP/USD is simply seeing a healthy pullback thus far ...

There are not any two ways about it: GBP/USD bulls were on bliss in February.

The currency pair, colloquially called “cable” for the transatlantic cable wont to process transactions back within the 19th century, went on a tear through the center of February, rising in 13 out of 15 straight days to realize a wide ranging 600 pips because the UK seemed to be a world leader in vaccinating its population, raising hopes that the united kingdom economy could return to some sense of normalcy this summer.

While this is often certainly a sound thesis and should still ultimately come to pass, the market has tendency to require good ideas to extreme levels, and that’s exactly what happened to GBP/USD in late February. because the chart below shows, the pair accelerated out of its gradually rising channel to peak above 1.4200 intraday before reversing sharply on 24 February. Rates then carved out an “evening star” pattern; this relatively rare 3-candle reversal pattern shows a shift from buying to selling pressure and is usually seen at near-term tops within the market:Since then, the pair has dropped back below the 1.40 handle to trade back near the center of its previous channel. With rates currently consolidating there, the question on every cable trader’s mind is “Was that a ‘blowoff top’ in GBP/USD or merely a healthy pullback within the context of the longer-term bullish trend?”

Like every statement we ask, it’s impossible to understand surely beforehand , but we will check out different indicators and tools to assist tilt the chances in our favor.

One of the large themes boosting the greenback in recent weeks has been the relentless rally in treasury yields. Traders are increasingly becoming convinced that each one the fiscal and monetary stimulus out of the US will eventually cause a pickup in inflation. While this is often certainly a relevant longer-term consideration, it’s worth noting that shorter-term bond yields tend to possess a stronger correlation to currency values, and thereon front, 2-year UK bond yields have actually risen by quite their US counterparts over the past month, therefore the fundamental anchor of bond yields actually favors relative strength in GBP/USD within the short term.

Meanwhile, the technical backdrop also remains generally supportive, despite the pullback over the last fortnight . The RSI indicator is showing early signs of stabilizing near the 45 level that has provided a floor throughout the past six months, supporting the notion that the established uptrend remains intact. Likewise, prices are stabilizing above the 50-day EMA and even showing early signs of alittle “morning star” pattern, the precise inverse of the Hesperus pattern that marked a top a few of weeks back. Finally, rates are carving out a falling wedge pattern, which shows waning selling pressure and a possible resumption of the bullish trend if the pair is in a position to interrupt above 1.39 in the week .

As always, we remain hospitable new information that paints a more bearish picture (in the apocryphal words of famous economist John Maynard Keynes, “When the facts change, i modify my mind. What does one do sir?”), the evidence currently suggests that GBP/USD is simply seeing a healthy pullback which the established uptrend could soon reassert itself for a rally back toward 1.4100+. Only a definitive price breakdown (below the 50-day EMA near 1.3800) and therefore the RSI (below 45) would throw the medium-term bullish bias into doubt from here.