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GBP/USD Forecast: The "Game Changer" Number to Watch

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The GBP/USD exchange rate is quoted at 1.2489 at the time of writing on Tuesday with the pair seemingly lacking conviction. Analyst and technical forecaster Richard Perry of Hantec Market says only a break above $1.2540 would be considered a near term game changer.

In a session where the U.S. dollar came under broad pressure, GBP/USD managed to add less than +10 pips with a small bodied (“spinning top”) candlestick.

The resistance between $1.2530/$1.2540 remains a key near term barrier.

A fourth small bodied, candle in a row suggests that the market is lacking conviction under this resistance.

Although the price is still edging with a slight positive bias, momentum indicators reflect a growing consolidation, with RSI stuck in the low 50s and MACD lines flattening at zero.

GBPUSD chart July

The hourly chart shows indicators settling down in the last couple of sessions, although a mild bias towards buying into weakness will sustain whilst the support between $1.2435/$1.2450 holds.

There is little real indication that there is about to be an imminent break above $1.2540 but this would be a near term game changer, opening $1.2685 as next resistance and the highs of the medium term trading band once more.

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Markets: The Return of Caution

It would appear that yesterday’s rally was drive just on the notion that China’s state run media encouraged its people to buy stocks to foster a “healthy bull run”.

So perhaps it is of little surprise that a rally fuelled by hot air looks set for a retracement today. China may have managed to pull further equity gains, but other Asian markets are more cautious, also futures elsewhere are turning back.

The focus in recent weeks has been far more on the concern that COVID-19 infection rates are rising alarmingly in the US and hampering the re-opening of the economy.

There are also pockets of lockdowns being reinstated across other countries such as Germany, Spain and Australia.

A bull rally seemingly priced for a perfect global economic recovery may need to prepare for disappointment. It is our view that disappointment could become a theme for Q3. The headline of the ISM Non-Manufacturing data, beating expectations at over 57 sounds great.

However, this only notes expansion versus the month of May, which could simply be negligible but broad based.

Also the employment component remains at 43 and in contraction. As many US states are hit by rising infection rates, July and through Q3 it could be a difficult period for a sustainable economic recovery.

Sentiment across major markets has a negative bias today. Yields are falling back, the dollar is looking to reclaim some ground lost from yesterday’s risk rally. Oil is lower and equities are lower as higher risk assets are hit.

The Aussie is also in the firing line today as the Reserve Bank of Australia held rates at +0.25% and did little to change its recent message of forward guidance (will not increase rates until there is progress towards employment and inflation goals).

With the city of Melbourne re-imposing a lockdown, this is hitting the Aussie today.