GBPUSD TECHS: Corrective Pullback

• RES 4: 1.0630 High Dec 6   
• RES 3: 1.0594 Dec 9 ‘24
• RES 2: 1.0533 High Jan 27 and a reversal trigger
• RES 1: 1.0514 High Feb 14
• PRICE: 1.0423 @ 16:02 GMT Feb 19
• SUP 1: 1.0402 20-day EMA
• SUP 2: 1.0280/0141 Low Feb 10 / 3 and the bear trigger
• SUP 3: 1.0138 1.764 proj of the Sep 25 - Oct 23 - Nov 5 price swing
• SUP 4: 1.0031 2.00 proj of the Sep 25 - Oct 23 - Nov 5 price swing

A bull cycle in EURUSD remains intact despite the fade off highs this week. The pair is trading closer to its recent highs and recent strength has reinforced current conditions to strengthen a short-term reversal signal. The Feb 3 candle resembles a hammer and suggests scope for an extension near-term. The pair has breached the 50-day EMA, at 1.0432, and sights are on 1.0533, the Jan 27 high. Initial firm support lies at 1.0280, the Feb 10 low.   

• The USD index is firming for a second consecutive session, with the likes of EUR and GBP underperforming in G10. Comments from President Trump on Zelensky have weighed on EURUSD, reflective of the souring sentiment towards how the potential Russia/Ukraine negotiations might progress.
• EURUSD continues to press towards 1.0400, placing weight on EURJPY (0.65%), which continues to hover near session lows as we approach the European close.
• Overall, EURJPY has pulled back from its recent high, and resistance at 160.68, the 50-day EMA, remains intact. A stronger reversal south would refocus the attention on 155.61, the Feb 10 low and a bear trigger. Furthermore, a trendline drawn from the August 2022 lows currently intersects just above this level, bolstering the significance of this area of support.
• UK inflation rose at the fastest pace in almost a year in January, outpacing even the Bank of England's expectation for a move higher. However, the small downside surprise in services inflation provided a cloudy signal for GBP, which has been dominated by broader dollar sentiment. As such, GBPUSD has slipped back below 1.2600, but overall is holding onto its recent gains.
• ZAR weakness was notable in EM amid the adjournment of the budget delivery, prompting a firm rally for USDZAR (+0.91%). This has weighed on the EM basket on Wednesday, with similar weakness being noted for the Mexican peso.
• USDMXN has risen a little over one percent on the session, to trade around 20.45 at typing. Key support at 20.1343 remains intact and the currency will remain particularly sensitive to developments in Washington, where US and Mexican officials are discussing the future trade relationship.

Wednesday's Europe rates/bond options flow included:

• OEH5 117.00/117.25ps, bought for 18 in 7.5k.
• OEH5 117.25/117.75cs, bought for 7.5 in 3k.
• RXH5 130.5/129.5ps, sold 3 in 8k.
• RXK5 134.50 calls paper paid 24 on 3.1K.
• ERJ5 97.62/9750ps, bought for 1 in 11.5k.
• ERM5 97.9375c, sold at 4.75 in 10k (ref 97.825)
• ERM5 97.9375/98.1875 1x2 call spread, paper sells for 2.75 in 12k.
• ERM5 97.9375/98.0625/98.1875c fly, bought for 1.25 in 7k.
• ERU5 97.875/97.750/97.625 put ladder 10K given at -0.25.