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GBP/USD Exchange Rate Forecast: "the Bulls are Looking more Positive Now"

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The GBP/USD exchange rate is quoted at 1.2545 in mid-week trade following a 0.50% advance over the course of the past 24 hours which leaves a more positive bias on the charts according to technical analyst and forecaster Richard Perry of Hantec Markets.

A bull run on sterling in yesterday’s session (on the prospect of a more constructive outlook for the Brexit trade deal talks) pulled GBP/USD through an important near term resistance at $1.2540.

Although the break could not quite be held into the close, the bulls are looking more positive now. A closing move above $1.2540 would complete a small base pattern within the range (arguably a head and shoulders bottom) which would imply a test of the $1.2810 key June high once more.

The is a more positive bias now forming through momentum indicators, with RSI at a three week high and leading the mini breakout, whilst Stochastics are rising strongly and MACD lines have just crossed higher.

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We have now drawn in the key 7 month downtrend from December which is a barrier up at $1.2705 today and may now become an issue for the bulls in the coming days.

Support is building in a range of around 100 pips between $1.2435 (what is effectively the right hand shoulder of the base pattern) and the $1.2540 neckline of the breakout. The bulls will look to use this as a base for moves higher now. Next resistance is $1.2685.

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Choppy Forex Markets

There is a cautious look to major markets this morning. Wall Street markets fell away late into yesterday’s close and this is leaving a bitter taste in the mouths of equities traders early today. A risk negative bias is threatening through US bond markets as a “bull flattening” is emerging.

With longer dated yields (associated with growth and inflation expectations) are falling more than shorter dated yields (which are fairly anchored now on expectations of Fed tinkering with yield curve control).

This could begin to weigh on equities if it continues. Forex markets have been choppy in recent days, with false moves seen on major pairs and increasingly ranging configuration. The UK has a bit of focus into today. Sterling has been boosted in the past 24 hours from a more constructive dialogue over the Brexit trade deal talks.

UK Chancellor Sunak is also set to announce further fiscal support today. Whether this is all enough to make a sustainable difference to sterling, with forex pairs seemingly stuck ranging, remains to be seen. One other key mover is a breakout on gold to multi-year highs, as it closes in on $1800 for the first time since 2011.

Daily drip feed of risk negative newsflow on rising COVID-19 reinfection rates, economy re-openings paused and snipping between the US and China over Hong Kong, all play into a stronger outlook for gold.