GBP\/USD edged up in Asia on Wednesday after a four-day slide, rebounding from the 1.3360 area, described as a one-week low, but it stayed below 1.3400. The US Dollar paused after a four-day rally to a one-week high, supported by hopes that US-Iran diplomacy could ease energy prices and soften hawkish Federal Reserve expectations, though tensions between the US and Iran remained a risk factor.<\/p>\n
On Tuesday, Sterling fell despite a stronger UK labour update, dropping from just above 1.3450 in London to just above 1.3350 in New York and moving through the 50-day and 200-day EMAs clustered just below 1.3400. GBP\/USD was near 1.3380 late in the session, heading for a fourth daily decline and marking its first close beneath both long-term averages since the mid-July rebound began; more than a third of the move up from around 1.3150 had been erased. Employment rose 147K in the three months to May versus 100K previously, claimant count increased 6.7K in June against a 28.3K consensus, and unemployment eased to 4.9% versus 5% expected; average earnings including bonuses slowed to 4.3% versus 4.5% consensus. Separately, the pair traded around 1.3430 in European hours, with technical markers citing an ascending channel, support from the nine-day and 50-day EMA, and a 14-day RSI near 55.<\/p>\n
We suggest that derivative traders tread carefully in the coming weeks as the Pound Sterling battles to hold key support levels against the US Dollar. The recent dip below the 50-day and 200-day Exponential Moving Averages near 1.3400 signals a shift in momentum that traders should not ignore. Short-term option strategies, like buying near-term put options, could help hedge against further downside if the pair fails to reclaim the 1.3400 mark.<\/p>\n
Although the UK jobs market recently showed resilience with unemployment slipping to 4.9%, cooling wage growth at 4.3% gives the Bank of England room to consider further rate cuts. With the upcoming UK CPI release expected to show inflation holding close to the 2.0% target, we expect sterling to face near-term downward pressure. Derivative traders should look at implied volatility on weekly GBP\/USD options, which has climbed recently, to price in this upcoming inflation data. <\/p>\n
On the other side of the equation, the US Dollar is finding support as geopolitical tensions fluctuate and traders adjust their Federal Reserve rate expectations. Currently, futures markets are pricing in a lower probability of aggressive Fed easing, which keeps the greenback resilient. We recommend using risk-reversal options to position for a stronger Dollar, especially if global energy risks flare up again.<\/p>\n
For those trading GBP\/USD spot or futures, we advise watching the critical support level at 1.3350. A clean break below this mark could quickly open the doors to the summer base of 1.3150. We believe range-bound strategies, such as iron condors, might be highly profitable if the pair stabilizes between 1.3300 and 1.3450 over the next fortnight.<\/p>\n\n\n\n