- GBP/USD softer at start of new week
- But tech outlook turning more constructive
- 1.41 possible should resistance level break
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- GBP/USD reference rates at publication:
- Spot: 1.3845
- Bank transfers (indicative guide): 1.3460-1.3557
- Money transfer specialist rates (indicative): 1.3720-1.3748
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The Pound-to-Dollar exchange rate's September recovery would need to break through resistance located at 1.3960 for a run towards 1.41 to transpire, according to a new analysis of the pair.
"Sterling/Dollar gained ground relative to the dollar for a second week in a row and its 0.78% advance is worth highlighting as it lifted the UK currency through its 50-day moving average," says analyst Bill McNamara, Director at The Technical Trader.
McNamara is eyeing a break through 1.3960 as a prerequisite for a more sustained rise in Pound-Dollar (GBP/USD) that could ultimately take in the big 1.40 level and potentially even 1.41.
Above image courtesy of The Technical Trader.
The call comes at the start of a new week that sees the Dollar recovering against the Pound, Euro and other major currencies as the market pares some of the declines witnessed the previous Friday in the wake of the U.S. jobs report.
"Friday's soft US jobs report is now favouring a dovish taper from the Fed and has drawn some of the sting out of upside scenarios for the dollar," says Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING Bank.
The GBP/USD exchange rate is quoted at 1.3843 at the time of publication, having been as high as 1.3891 in the aftermath of the U.S. jobs report release.
"Chances of the Fed announcing tapering at the September 22nd meeting seem to be dwindling," adds Turner.
The non-farm payrolls component of the jobs report for August presented a huge miss to investors, coming in at 235K, which is far below the 750K the consensus was looking for.
The data serves as clear evidence that the U.S. economic rebound has slowed down under the weight of a resurgence in Covid 19 cases, driven by the Delta variant.
Expectations for a slowing economic rebound that gives the Fed opportunity to maintain caution will likely undermine the Dollar in the near-term.
Above: U.S. employment growth slows. Image courtesy of DNB Markets.
The softer fundamental backdrop for the Dollar comes amidst signs that the technical barriers for the Dollar's summer rally were starting to rise and near-term signals are now suggesting further losses are possible.
"The rally of the dollar lost momentum when it approached important support level in EUR/USD (1.17) and GBP/USD (1.36). Because the momentum was not strong enough to force a break, profit taking on long dollar positions was the result," says Georgette Boele, Senior FX Strategist at ABN AMRO.
Concerning the outlook, McNamara says Dollar weakness remains the primary driver for GBP/USD direction.
"The US currency could conceivably weaken further if future data supports the view the domestic economic recovery is losing momentum (in which case the Fed will simply sit on its proverbial hands)," says McNamara.
He adds July’s intermediate high at 1.3960 is the next area of possible resistance and "if that gives way we might see a short-term run up to 1.41 or so".
Therefore following a summer of losses for the Pound against the Dollar the potential for a rebound in September has risen.