After Friday's carnage, global markets opened in a more optimistic mood, and it's not surprising given the early hospitalisation data from South Africa, but it's still early to expect the risk-on trend to resume fully. Here in the UK, the government has signalled an increase in restrictions, though they remain mild, with some mask-wearing in enclosed areas becoming mandatory and adjusting border isolation from red level countries, while the Booster program may be expanded as early as today.
Despite the news flow over the weekend tentatively supporting my view, I still believe Friday's price action was an overreaction during holiday liquidity. Buying the USD (against JPY and EUR) now that the initial reaction has passed still makes sense whilst the market structure remains unbroken. Keeping the position sizes smaller while we wait for some more news is advisable and we are about to enter the month-end period with all its large and indiscriminate flows.
Considering this new variant could reinforce the UK's aggressive booster campaign and strengthen the chances of a pause in the row over the NIP/Article 16 for now, in addition to the recent short positioning build, EURGBP should be sold today back towards 0.85, which could lift the pound a tad against the US dollar.
In cable, 1.3310 is initial support and if today closes with a solid green candle, the pattern would be a basing pattern (Drop-Base-Rally), with 1.3310 likely to get tested tomorrow, before the buyer’s step in. Currently, I am viewing this price action as sellers taking profits.
Wednesday is likely to give the pound crosses the biggest moves as Bank of England governor Bailey speaks at 2.00 pm. But we also have Nationwide HPI, Manufacturing PMI and a 10-year bond auction.
For the contrarian trader seeing the bullish sentiment on the ActivTrader indicator is a worry for those looking to buy at these current levels as you would be trading with the herd. Always easier to not trade in line with the crowd. 1.3520 is my level for a change in market structure, so that would be my target, it would be nice if these bullish retail traders flipped to being neutral or bearish as there are a few swing highs with stops above that would accelerate price to the top of the daily channel if the retail crowd were on the wrong side of the trade. If 1.3310 were to crumble as a support level, one last dip to sweep the stops could signal the next bullish phase is ready.
On the hourly, we can see that cable has made a measured move out of one descending channel to the upper level of the measured move line. So, I couldn’t take a long without seeing a breakout of this and 1.3350 with a retest before continuation. The bullish scenario on the h1 is that we are now possibly waiting for a higher low to form, which the dip buyers will get involved with. As has been the case for several months now, we must watch the US dollar index. If that continues to collapse from recent highs, then GBPUSD could get the lift higher sooner. But 1.3500 will be a key battleground for the bulls to show they can overwhelm the bears.