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GBP/USD spikes lower on a broad based dollar strength, S3 to give way to 1.26 the figure

  • GBP/USD dropped to the rising support line in thin holiday markets as the dollar catches a broad-based bid with a sharp rise in US stocks. 
  • GBP/USD is currently trading at 1.2641 falling from space on 1.27 handle to a low of 1.2634.

GBP/USD has pierced the 10-D SMA while the greenback has rallied from 96.57 to a high of 97.00 in a surprisingly strong rally on Wall Street with the Dow climbing from 21456 to a high of 22356 so far,  snapping a four-session losing run.

Politics in the driving seat

Casting minds to a shorted Chrismas Eve session, the wheels came off socks and risk on the back of 1) tweet Trump posted, "The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch - he can’t putt!" and 2)Treasury Secretary Steven Mnuchin tweeting that he had spoken with the CEOs of the country’s six biggest banks to assess the health of the banking system, raising concerns that the administration knows something the market did not.

However, those concerns have been parked for now moves are likely exaggerated due to thin liquidity with much of the market still out on holiday. However, with the US government shutdown and pending Brexit risk on the cards in the New Year, there is likely to be plenty of volatility to come down the line. 

GBP/USD levels

The market remains vulnerable on the downside with the price below the trendline support attacking the 50-hr SMA and 10-D SMA. "Below 1.2477 targets the 78.6% retracement at 1.2109. Above 1.2710 lies the 1.2840 current December high but while capped by the resistance line at 1.2911 it will remain offered," analysts at Commerzbank argued.  For now, the price is consolidating at S3 but a break there exposed 1.26 the figure. 

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