Pound Dollar at 2 Month High; But Will the Bank of England Spol GBP's Party?
We reported yesterday that the Bank of England could attempt to talk interest rates, and the Pound Sterling, lower owing to the recent unintended appreciation in both.
Today this view is echoed by Leander Dreyer at Jyske Bank:
"Much positive news has been discounted in GBP. Yet, we see a rather actual risk that the Bank of England will at its
next interest rate meeting attempt to send signals which should keep down interest rates this will depreciate GBP.
"If we look at the so-called "Surprise Index", we are at the top (indicators have been positive surprises). We have often seen that very high levels in the Surprise Index are followed by negative surprises because analyst expectations are too high and unrealistic the UK economy still faces very large challenges."
But for Now, Pound Sterling Strength is Still With Us
Kathy Lien at BK Asset Management explains why GBP is performing positively at present:
"The markets are pricing in an earlier rate hike by the monetary policy committee, which means they expect the central bank to reach its unemployment rate target sooner.
"Before last week's data surprises, investors expected the first rate hike to occur at the end of 2016 but now tightening could happen as early as February 2015. This is still a long time from now but the dramatic shift in expectations is part of the reason why sterling has performed so well this month."
US FOMC Minutes are Key Fundamental Driver
At 19:00 London time the FOMC Minutes are released; as we said earlier this will provide volatility and could indeed spark a return of US dollar strength.
Also of importance is the CBI Industrial Trends release due at 11AM.
"The number that we are more interested in is the factory orders index from the Confederation of British Industry. We believe that this data has a good correlation with the more closely followed manufacturing PMI report because it measures the same sector. Economists are looking for an improvement and if the increase is large enough, it could drive the GBP/USD to its June high of 1.5750," says Lien.
Technical Outlook for GBP/USD
Brad Gareiss at GFT says he is still a buyer of the Pound / US Dollar exchange rate:
"The GBP/USD inched higher in choppy trade over the last 24 hours. At this point, our buy trade from yesterday remains intact, and based on the recent price action it would be prudent to tighten up the stop slightly.
"Specifically, traders could look to move the stop loss on the trade up to 1.5625 (below the recent 4hr Bullish Pin Candle). Beyond that adjustment, we will continue to hold out for a continuation up to 1.5700 or 1.5750 later this week."
Luc Luyet at MIG Bank says be believes upside potential for GBP/USD is now limited:
"GBP/USD made a decisive break over 1.5574 (see also the 200 day moving average). Scope is now seen for a further push higher to retest the resistance at 1.5752 high. An hourly support stands at 1.5608.
"The resistance at 1.5752 coupled with short- term overbought readings suggest a limited short-term upside potential. Nevertheless, a break of the support at 1.5423 (see also the rising channel) is required to dampen the current bullish bias that is in place."