The pair is up 0.9% on the day to near 1.1700 currently as the bounce from key support at the March 2020 lows near 1.1400 continues to extend. The initial bounce stalled around the 23.6 Fib retracement level at 1.1610 but we are running above that now with the 38.2 Fib retracement level next seen at 1.1737:
As such, there is scope for cable to extend the latest bounce here amid a correction in the dollar and the pound finding some light relief from the government's fiscal aid on energy prices.
Despite the latest recovery, it is hard to be convinced of a major turnaround in cable unless the government really is going to abandon fiscal responsibility and throw the kitchen sink at propping up the economy. The issue here is that during the pandemic, monetary policy worked in tandem as interest rates were cut; now it is quite the opposite.
That's a costly thing to consider and it won't bode well for the UK's long-term fundamentals i.e. from a current account perspective.
In any case, I would pin any move closer to 1.1800 to start inviting short positions again - so long as the balance of things remain as they are at the moment. For this week, be wary of the US CPI data release tomorrow. That will also help to set the tone before we get to the FOMC meeting next week.
