Cable eyes key support level as dollar momentum continues to run

The pair saw a bit of a bounce back the day after the US election result but that was arrested closer to the 1.3000 level alongside the 100-day moving average (red line) last week. Since then, sellers are back in control with price keeping lower again today and poised for a third straight day of declines.

The fall now sees GBP/USD down to its lowest levels since August and is eyeing a test of key support. The 200-day moving average (blue line) is up next at around 1.2817. Cable has not traded below both its key daily moving averages since May. A break lower here will solidify a more bearish bias in the pair with the dollar looking to extend its post-election run.

If the 200-day moving average and 1.2800 level breaks, the August lows around 1.2664-72 will be eyed next to the downside.

As things stand, it’s all about the momentum play in the post-election period. The dollar continues to be favoured and even if you look at it from a central bank perspective, it is also the case.

Markets have priced in ~87% odds of a 25 bps rate cut by the Fed for December. Meanwhile, the odds show a ~75% probability of the BOE holding its bank rate unchanged. If the former is to flip to being a hold decision or the latter flipping to be a rate cut decision, either of that is also a push factor for GBP/USD to nudge lower.

So, therein lies the balance of risks of the fundamental side of things. And we’ll have to weigh that up alongside the post-election dollar momentum as well as the technical considerations above. In short, the balance of risks continue to favour more downside in cable for now.

This article was written by Justin Low at www.forexlive.com.