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- GBP/USD likely to rise in run-up to year-end
- Buying opportunities lie below 1.30
- GBP/USD currently falling to 2018 lows
The Pound-to-Dollar exchange rate could deliver Sterling-bulls a Christmas present this December we are told.
GBP/USD will probably be drawn back above 1.30 before Christmas should "solid signs of progress" are being made on Brexit, says Viraj Patel, FX strategist at ING Bank in London.
The level would also be associated with the Bank of England being expected to raise interest rates at least once in 2019.
"We see GBP/USD’s short-term gravitational pull at 1.35-1.36 on a Brexit deal being reached this side of Xmas," says the strategist.
Yet looking at the charts traders could be forgiven for not seeing the magic in the forecast.
The GBP/USD rate continues bleeding lower as Brexit uncertainty dominates.
"GBP remains in its usual state of flummox as the Brexit impasse continues, with politics at home the biggest stumbling block," admits Patel. "Until this is resolved, we expect GBP/USD to trade below 1.30."
The pair is currently trading in the 1.27s after falling at the start of the week, despite the Autumn budget being well-received.
Yet this short-term weakness may provide bulls with an exceptional buying-opportunity as traders can buy the Pound at a 'discount' in anticipation of the rise into Christmas and year-end.
Patel estimates fair-value sits at 1.30 for GBP/USD.
"GBP/USD trading 2 big figures below the ‘neutral’ sentiment level of 1.30 presents a good opportunity to buy GBP again – if one believes that Brexit will, in fact, be alright on the night," says Patel.
To see how ING's forecast compares to consensus estimates for GBP/USD over the 3, 6 and 12 month timelines we suggest viewing a special report from Horizon Currency that gives an overview of where 50 of the world's leading investment banks are expecting Sterling to travel.
Sterling has been under pressure against the Dollar of late some analysts are now earmarking the August and 2018 lows at 1.2665 as the next target for the growing GBP/USD downtrend.
"The trend still targets 2018 low," says Richard Pace, an analyst on the Thomson Reuters currency desk.
"Prices remain under pressure," says Robin Wilkin With Lloyds Bank. "A rally back through 1.2865-1.2945 resistance is needed to alleviate the pressure. Otherwise, the risks remain for a test of the 1.2700-1.2660 previous lows."
The 2018 lows could provide a further buying opportunity for bulls - or a 'make or break' level for the pair. Historic lows are major support levels or 'hard floors' where the exchange rate often bounces higher or reverses trend.
The levels are often traded by short-term technical traders anticipating the bounce and so act as a magnet to demand.
Assuming the August lows at 1.2665 hold the market could be presented with a highly profitable risk-reward bullish bet.
If they break, however, the Pound might be pivoting lower and all bullish bets are off.
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