GBP/USD Predicted to Hit 1.5350 as Combined PMI Readings at Highest Level Since Records Began in 1998

UK PMI Services printed at is best level since 2006, lifting GBP/USD through the 1.5350 level in mid morning London trade today.

"In yet another example of rapidly improving UK economy the PMI services report rose to 60.2 from 57.4 eyed indicating that growth in Q3 should be considerably better than the start of the year," says Boris Schlossberg at BK Asset Management.

The pound is predicted higher as Carney could be forced to keep policy steady

Schlossberg believes that today's strong data provides another indication that the UK economy is showing fresh strength.

Thus, the Bank of England may fail to deliver the surprise many currency watchers are worried about. Schlossberg says:

"Not long ago investors bemoaned the fact that UK economy was about to dip into a triple dip recession as GDP was about to contract for the third time since the financial crisis of 2008.

"However, economic condition in UK have clearly improved substantially over the past several months with the July PMI data beating forecast in all sectors. Indeed the combined PMI reading now stands at the highest level since records began in 1998 suggesting that the expansion is picking up upside momentum.

"Cable rose to clear the the 1.5350 level and now stands ready to attack the key 1.5400 figure which has been a major point of resistance over the past several weeks. Despite robust economic data, sterling has weakened over the past few weeks as investors worried that the new BOE chief Mark Carney would take monetary policy into a more accomodative direction.

"However, so far Mr. Carney has shown little inclination to increase QE or lower rates and today's very strong results demonstrate unequivocally that the UK economy is rebounding strongly without any additional stimulus.

"Therefore, as suspicions regarding Mr, Carney's dovishness begin to recede, the pound may find renewed strength and could trade towards the yearly highs of 1.5700 over the next several weeks."

Technical forecasts: Beware a resumption of GBP/USD losses

Before backing a rise in GBP/USD it is worth considering that the medium term technical picture favours the US dollar.

The latest currency predictions for the Pound Dollar exchange rate from ICN Financial Markets show:

"The pair moved sharply to the upside and is stable again above key support level of the upside move, as it failed to stabilize below it and below 1.5170. RSI is stable above 50 and Stochastic is biased to the upside.

"Therefore, it is possible to see more positivity this week. Stability below 1.5170 again might indicate the failure of the upside move and the beginning of a new downside wave.

"The trading range for this week is among key support at 1.5035 and key resistance at 1.5550.

"The general trend over short term basis is to the downside as far as areas of 1.5605 remains intact targeting 1.4550."
(Click to Enlarge).