GBP/USD - retraced 50% of the BOE-led sell-off, risk reversals at 1-month high

GBP/USD has retraced 50 percent of the BOE-led drop from 1.3299-1.3039.
Risk reversals rose to 1-month high on Monday, signals improving call bias.

Having defended the support zone of 1.3030-1.30 levels post-BOE, the GBP/USD jumped to 1.3174 levels on Monday on the back of broad based USD selling.

The currency pair traded in the sideways manner around 1.3170 levels in Asia.

Kathy Lien from BK Asset Management writes, " investors are starting to think that even though the BoE did not say that another hike is on the way after last week's meeting, there's no doubt that additional rate hikes are on their minds. "

However, the yield differential does not support the argument. The US-UK 10-year yield spread is still rising and only deteriorated slightly on Monday from 107.6 basis points to 106.2 basis points.

Risk reversals rise to 1-month high

The one-month 25-delta risk reversals rose to a one-month high of -0.488. Though negative, the steady improvement from the Oct. 6 low of -0.85 indicates improving call (bullish) bias.

Looking ahead - The focus remains on the US-UK yield spread. Sterling may be offered in early Europe in response to the dismal BRC retail sales data released in early Asia.

GBP/USD Technical Outlook

Valeria Bednarik, Chief Analyst at FXStreet, writes, " Technical indicators in the mentioned time frame entered positive territory maintaining their strong upward slopes, while the price surpassed its 20 SMA that anyway maintains a bearish slope. The 50% retracement of the latest daily decline stands at 1.3165, being then the immediate resistance, ahead of the 1.3200 figure, where the pair has the 200 EMA and the 61.8% retracement of the same side."

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