British Pound Predicted to Gain versus US Dollar + Possible Scenarios and Outcomes to Tomorrow's US Fed Minutes
Emmanuel Ng at OCBC Bank has consulted the charts and says he sees further support for GBP:
"Markets may remain partial towards the GBP pending further US cues, especially in view of the recent slate of supportive data releases. On the CFTC front, the net speculative GBP shorts were increased in the latest week but we reiterate that the GBP-USD has managed to break above its 200-day MA (1.5522) in the past week with the pair now also hovering above the 1.5600 handle. In the interim, expect some degree of consolidation around the 1.5665 neighbourhood."
ICN Financial Markets say that for the Pound / Dollar rate key resistance lies ahead at 1.5800 (click graph thumbnail to enlarge):
"A daily closing above 88.6% correction at 1.5645 was achieved supporting the extension of the upside move and forcing us to ignore any negative signals on momentum indicators. Linear Regression Indicators support the possibility of extending bullishness and the next suggested target is the previous top at 1.5751.
"The trading range for today is among key support at 1.5500 and key resistance at 1.5800.
"The general trend over short term basis is to the upside as far as areas of 1.5100 remains intact targeting 1.6010."
Luc Luyet at MIG Bank says there is scope for further gains from here:
"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.
US Fed Tapering and the Interpretation of the July Policy Meeting Minutes
If anything will break the upward momentum in GBP/USD it is tomorrow's release of the Fed’s July policy meeting minutes.
Lloyds Bank Research say:
"In June, Fed Chairman Bernanke suggested that the central bank could start tapering asset purchases later in the year with a view to potentially ending the programme sometime in 2014.
"From July’s minutes, market participants will be looking for colour on how committed members of the FOMC were to the prospect of QE tapering. Any discussions around size and type of assets that could be pared back, would provide further support to the consensus view that the Fed will start to taper by $15bn in September.
"In addition, any concerns highlighted around the debt ceiling issue, due to flare up again just as Congress returns after the summer, will also be watched closely.
The FOMC left policy unchanged in July, keeping the federal funds rate unchanged at 0% to 0.25% and maintained its open-ended commitment to purchase $45bn of longer-dated treasuries and $40bn of mortgage backed securities. There was one dissenter with Kansas President George worrying that policy was too loose."
With regards to the likelihood of tapering Lloyds say the case for September tapering was strengthened after statements from Fed Presidents Fisher and Evans suggested that recent data would be supportive of QE tapering, even after July private payrolls data disappointed.
However, June’s minutes did highlight that many FOMC members “indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases.” Recent concerns around the pick up in mortgage interest rates have also been cited by some as a key area of concern ahead of potential tapering.
"Meanwhile, if as expected, Chairman Ben Bernanke steps down when his term ends in January next year, it leaves questions about succession and the timing of future policy. Vice Chairman Yellen and Larry Summers have been highlighted as potential candidates and an announcement is expected by the end of September to allow time for Senate confirmation," say Lloyds.