GBP/USD Underpinned by Speculative Buying

The GBP/USD finished higher on Tuesday in limited trading. The market was pinned by a pair of 50% levels at 1.6409 to 1.6469. These barriers can even be extended to the .618 levels at 1.6363 to 1.6501.

The Sterling rallied after the International Monetary Fund increased its growth forecast for the U.K. by more than any other G& nation. The market was also underpinned by speculators betting the U.K. jobless rate would reach the Bank of England’s threshold, setting up the possibility of an early interest rate hike. Traders also pushed the market higher in anticipation of the latest BoE minutes.

The EUR/USD was under pressure on Tuesday, finishing lower while posting a tight trading range. The Euro weakened against the dollar after a report showed that the ZEW Index for German Economic Sentiment nudged lower this month. The ZEW Centre for Economic Research reported its key index declined to 61.7 this month from 62.0 in December. Analysts had expected an increase to 64.0.

The Euro was under pressure throughout the session on concerns that a weak inflation outlook for the Euro Zone would lead to the implementation of additional stimulus by the European Central Bank. Talk that the Fed may step up the pace of tapering since the economy is so strong also weighed on the Euro.

Technically, the Forex pair straddled the major Fibonacci level at 1.3523. This may be an indication that a support base is forming. This could trigger a short-covering rally over the next day or two. The first target is 1.3593.

March Crude Oil futures reversed to the upside after the People’s Bank of China injected credit into the financial system to offset concerns about slower economic growth and a spike in interest rates. Analysts also increased their forecast for global crude oil demand.

Prices had been under pressure earlier in the session because of yesterday’s report which said China’s fourth-quarter economic growth declined from the previous quarter and other economic data suggested the economy may slow further.

A sharp rise in the U.S. Dollar and the early stock market rally pressured February gold futures. On Monday, the main trend turned up on the daily chart, but today’s sell-off has the market in a position to turn it back down on a trade through $1233.50. The quick reversal to the downside shows just how fragile this market is to the upside.

Long traders who bought in anticipation of a drop in equity markets quickly dumped these positions when the stock indices posted an early rally. This liquidation triggered sell stops and attracted the attention of fresh short-sellers.