Christopher Vecchio, Currency Analyst at DailyFX, comments:
“The GBPUSD’s impressive run may be hitting a near-term resting point as the conflux of several key levels offers a point of reference for longer-term buyers to take profit at as well as for short-term sellers to trade against. While the GBPUSD ran through $1.6800 briefly during a light trading session on Monday, price had fallen under 1.6748 by the second half of the European trading session. 1.6748 represents the 61.8% extension of bull flag that formed from the July low through the September-November consolidation as well as the April 2011 high.
“Given the fact that the retail forex crowd remains heavily short GBPUSD (from 8.32 traders short for every 1 long to 6.26 today), selloffs in the near-term are likely to be supported by traders covering out of the money positions at first sight of a rebound. A weak CPI reading for January due out tomorrow (-0.5% expected vs +0.4% prior m/m) could provide further ammunition for new shorts to work with.”