U.S. Dollar weak, Pound Jumps to Fresh Highs – Next Targets in Focus

The biggest story in the Forex market was the rise of the British pound which jumped to the highest level since April 2018. Falling coronavirus cases, the U.K.’s successful vaccination drive and a neutral stance of the Bank of England could bolster the pound’s uptrend in the short-term. However, traders who are betting on the pound’s long-term strength should be careful since the pound is behaving like a risk-on currency, making it vulnerable to a reversal.

Some strategists are already becoming more bearish on the pound, saying that trade disruptions, a widening current account deficit and under-priced political risk around another Scottish independence referendum are providing a headwind for the pound.

In short-term time-frames we saw GBP/USD testing the 1.39-level, bringing a higher target of 1.3970 in focus. However, the currency pair remains in overbought territory, making a correction more likely than a linear continuation of the pair’s uptrend. A current support is seen at around 1.3750.

The anti-risk U.S. dollar depreciated Friday. With the pace of coronavirus outbreaks slowing further, investors are banking on U.S. government spending and the vaccine rollout to boost the economic recovery, even though new variants of the virus are threatening to temper the outlook.

The EUR/USD was able to stabilize above 1.21 after Friday’s decline below 1.21 has proved short-lived as bearish momentum faded. As long as the currency pair trades above 1.2080, we will focus on a test of 1.2170-80.

The DAX seems to be on its way towards a test of 14200. If the index breaks above that level, we may see a continuation of the upward movement towards 14400. A current support is however seen at 14000.

U.S. markets are shut for President’s Day today, so we might have a quiet start to the new week.

Upcoming key events this week:

EU finance ministers will discuss the bloc’s current economic situation and outlook on Tuesday.
FOMC minutes from the January meeting are due Wednesday.