GBP/USD - Monthly Analysis - Sep Q3I'm back from vacation which means I'm back on the charts. Today I'll be sharing my monthly chart on the GBPUSD along with focusing on the interest rate differential and the 30 year US treasury bond supporting my directional market profile.
Clearly, GBPUSD is bearish and now trading below the previous 2020 low. Currently I can see price having the tendency to trade into the regions of <1.124, a monthly bullish order block before potentially turning bullish for the next seasonal period.
This is an important week, as we have interest rate decisions for both the FED (USD) and BoE (GBP). The current consensus is a 75bps hike for the Dollar and a 50bps hike for the Sterling, which again increases the interest rate differential between these two economies with the Dollar being stronger which supports my bias of this pair trading lower in the 1985 bullish order block.
Regarding the 30 year US treasury bond, without going too much into detail, I can see the treasury note creeping up higher (yields coming down) which generally means we could be seeing a weaker US Index in the horizon.
Finally, I just want to make a few points on this 1985 low and why price aggressively started trading higher for the Cable.
Ronald Reagan was in office in the 80's who had undertook major tax cuts boosting the American economy where in turn the FED decided to raise interest rates which prompts foreign investors to put their money into the US, thus sending the value of the Dollar higher against other foreign currencies. The strength of the dollar meant overseas buyers got less bang for their buck when trying to import goods from the US.
American manufacturers were therefore hard-hit by the exchange rate, which was harming its ability to export.
There were also concerns over protectionism, as other countries slapped tariffs on their own exports to take advantage of the dollar's value.
Eventually the US got together with France, West Germany, Japan and the UK and signed the Plaza Accord, which agreed to depreciate the value of the dollar.
Central bankers sold more dollars in exchange for other currencies, bringing its value down 40% in just two years, which is the sharp increase in the price of GBPUSD that you see on the charts in 1985.
I hope this post has been useful.
Aman | SMC Wolf FX
