MENU

The Pound-to-Dollar Rate Is a 'Buy on Dips' Candidate say Analysts

© moofushi, Adobe Stock

- GBP outlook is bullish, dips are buying opportunities say UBS.

- GBP rises with optimism about Brexit deal, but U.S. data is a risk. 

- Key buy-in levels are around 1.2775 and 1.29 GBP/USD thresholds.

The Pound has been volatile of late and this has made it hard to trade, according to foreing exchange dealers at banking giant UBS, who are advocating that clients buy the British currency on dips. 

"GBP remains very hard to trade on an intraday basis," says a note from the UBS spot trading desk. "If you take a step back to look at it more medium term, my view remains rather modest and skewed towards looking for levels to which to buy GBPUSD." 

The Pound-to-Dollar pair surged to highs of 1.3060 on Friday after reports EU officials believe they are close to agreeing a deal on the U.K.'s withdrawal from the bloc. However, the rate has pulled back as traders unwind their exposure to it ahead of the U.S. non-farm payrolls report due later in the session.

It is quite possible that payrolls will give a positive lift to the Dollar and push the GBP/USD rate lower.

Analysts estimate a further reduction in US unemployment to 3.8%, which will leave the jobless rate at its lowest level since 1969. Wages are forecast to rise by 2.8% and payrolls themselves are expected to have increased by a respectable 185k. 

UBS accounts for this in its analysis and suggests buying the pair after the 'dip', even if the rate is all the way back down a1.2900 by then.

Indeed, given the big moves following the Salzburg summit and subsequent volatility, a spike down even lower to 1.2775-85 is possible and would also present a buying opportunity.

Analysts at another major bank, Commerzbank, are arguing the opposite though. Karen Jones, head of technical analysis, says the outlook for the pair is mildly bearish.

"It (GBP/USD) is fairly neutral but we are slightly biased to it remaining downside corrective near term. There is scope for a slide back to the 78.6% retracement at 1.2798/85 and the 6th September low. This is seen as the last defense for the 1.2662 August low," Jones writes, in a briefing to clients.

Analysts at FXStreet note that GBP/USD has now climbed back above the key 50-day moving average after briefly closing below it on Wednesday. This is a rubicon-like milestone for the pair because the 50-day average is watched closely by some kinds of investors who will base buying and selling decisions primarily on whether the price is above or below it.

At that same time, FXStreet notes how the pair is still trading below another key average, the 100-day one at 1.3110, which effectively leaves it trapped within a narrow band. Momentum, meanwhile, is neutral-to-bullish. The pair has also broken above the cloud on the Japanese Ichimoku chart which is another bullish sign.

"The correction off the 2018 low has transformed into an uptrend following the recent break back above the daily Ichimoku cloud. It's the first time the market has traded above the cloud since it was trading around 1.4000 back in April and encourages the possibility for a more meaningful recovery ahead. Any setbacks should now hold up ahead of the 1.2800 area," says FXStreet. 

Above: Pound-to-Dollar rate shown at daily intervals.

Advertisement
Lock in Sterling's current levels ahead of potential declines: Get up to 5% more foreign exchange for international payments by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here

GBP/USD download banner