Sterling rose nearly 5.5% in July to mark the best month against the greenback since 2009
The dollar index fell to multi-year lows and closed at 4.1% in July
GBP / USD rejected from 5-year trendline above USD 1.3150
GBP / USD rose almost 5.5% in July to mark the best month since 2009. The dollar fell to multi-year lows against a range of currencies, with the dollar index closing the month down 4.1%.
Fundamental analysis: sterling is rising due to broad dollar weakness
The pound sterling took advantage of general dollar weakness to push the dollar above $ 1.30. A strong performance in July means the gains the pound has made against the greenback are the biggest in over a decade.
Still, the euro was a preferred currency to bet against the dollar as investors are concerned about a second wave of infection and a weak UK economy.
"The fate of the pound is increasingly determined by monetary policy stance, the ability of the economy to recover from the global pandemic, and the Brexit negotiations that are effectively in the mud," said Bank of America strategists Merrill Lynch wrote.
An increase in the number of new COVID-19 cases, as well as current data suggesting a slower recovery, made dollar sales easier.
“The dollar fell very sharply over the month. Interest rates are falling and this makes the dollar much less attractive as a yield game, but (also) the market is beginning to become aware of the dollar's political risk. " said Boris Schlossberg, managing director of the FX strategy at BK Asset Management.
The dollar recovered slightly on Friday, most likely due to short coverage and profit taking on the last day of July.
"We only see a short cover and a bit of risk always leads to inflows into the dollar," added Schlossberg.
Technical analysis: Strong long-term resistance limits the rally
GBP / USD rose more than 2.2% this week, pushing the price move above USD 1.31 for the first time since March this year. On the way up, buyers managed to overcome multiple levels of resistance from $ 1.2650 to $ 1.2900. All of these levels will now serve as support and provide buyers with a base to prolong the upward trend.
Price movement stopped at $ 1.3170, slightly above the 5-year trend line that is keeping the downtrend intact. Price movements touched this trend line for the last time twelve months ago and rebounded sharply. As a result, this zone will continue to act as strong resistance, while USD 1.29 – the 200-WMA – will offer support nearby.
The pound made its biggest gains against the greenback in over a decade as the trend of strong dollar sales continues. The price action met with 5 years of resistance, which will likely be the largest test of buyers engagement ever.