Though markets now expect the first Federal Reserve interest rate hike to take place after June 2016, the USD has found renewed strength as the ECB and PBoC ease monetary policy further. With risk appetite returning to markets on the back of S&P 500 strength, it remains to be seen if USD strength can truly continue. However, the USD strength may be a precursor to some weakness in U.S. equities. The new failed high on the breakout rally from 1.5109 to 1.5507 signals a move back to the 1.5162 support level. The lows circled in orange are a formidable zone of support to the downside. All attempts to move below 1.5162 have been met with supply. But buying momentum is diminishing. Each failed high peaks with less momentum than at the last high. This confirmation in price action by momentum signals further losses in the GBP/USD. A move to the downside is first met by the 1.5250, now turned, support level. A move lower in the GBP/USD will be largely dictated by the moves in the S&P 500. The "strong USD, strong U.S. equities" theme will need to prove its validity this trading week. If equities continue to advance, it is more likely that the USD weakens yet again sending the GBP/USD to rally. However, USD weakness may be a selling opportunity in the GBP/USD. Global easing is in full implementation inducing USD buying as it is the weak euro and renminbi that prop global markets. Therefore, this week’s price action and capital flows will have to confirm whether strength in U.S. equities will weaken the USD on risk appetite or if global monetary easing keep the USD propped with strength.

Outlook for the week:

This is an excerpt from this week's issue of QUID REPORT. Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for daily, real-time updates to the weekly report. AVAILABLE NOW.