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The Pound to Dollar exchange rate (GBP/USD) is close to capitulating.
There's just too much leaning against the British Pound right now, preventing it from pushing fresh highs against the Dollar.
In fact, despite a well-entrenched longer-term uptrend, the pair looks as though it is ripe for a more meaningful pullback in the short-to-medium-term timeframes (i.e. the coming days to a few weeks).
The Dollar's woes are plentiful, with economists and markets questioning whether its very status as the supreme reserve currency can withstand the significant policy changes underway in the U.S. and the steady decline of U.S. economic exceptionalism.
However, positioning against the Dollar is extensive, which alone is enough to position for a USD rebound.
"For the twin prime reasons of ultra high geo-political uncertainty, and the lack of a credible alternative given that USD accounts for 88% of one side of all currency transactions globally, for the next 6 months at least USD remains a currency to buy rather than sell," says Humphrey Percy, an analyst at SGM Foreign Exchange Ltd.
The GBP/USD chart shows a sizeable 1.0% pullback on Tuesday, which is linked to a spike in tensions in the Middle East, with Donald Trump seemingly beating the war drum, seeking the "unconditional surrender" of Iran.
Such an escalation in the conflict would create a surge in oil prices which automatically raises demand for the Dollar.
Given this price action, GBP/USD has retreated to a key technical support level:
Above: GBP/USD at daily intervals.
As the chart shows, 1.3420 has acted as notable resistance (April) and support (since May). If it can hold, then GBP/USD can recover, and we will maintain a constructive bias that would expect fresh highs.
However, a breakdown through here will add to the sense that perhaps the time for a USD rebound is upon us, and we should anticipate a weaker exchange rate.