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.
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.
Derivative Strategies and Fundamental Considerations
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.
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.
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.
Key Levels and Trading Recommendations
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.
