The GBP/USD Reclaims Upside Momentum, 1.55 Ahead
The British pound has endured a torrid time against the dollar since mid-October but is now fighting to re-establish the medium-term uptrend.
The GBP to USD conversion fell from an October best at 1.55 down to the 1.5250’s towards the end of the month.
Despite the declines there is reason to believe that GBPUSD may be able to stage a more sustained recovery, even in the face of markets gearing up for a December interest rate rise at the US Fed.
We noted at the start of the week beginning 25th of October that sterling was looking to defend the upward-sloping channel that formed the basis of the broader October rally.
GBPUSD did fall below the line, but we are now watching the exchange rate stage a comeback:
To be honest we doubt that there will be much impetus in the market to take the GBP much higher as we head into the month-end.
We wait for the start of the new month and the data it brings with it to spark an extension of the GBP/USD recovery, or a decline back below 1.53.
“GBP/USD is consolidating very near term following over one week of losses. The market continues to weigh on the downside following the erosion of the 20 day moving average, this is likely to now act as support 1.5338/46,” says Karen Jones, a technical analyst with Commerzbank in London.
Commerzbank look for the market to remain under pressure to retest 1.5202/00 the low from mid October.
It is argued that failure here is required to retarget the 1.5172/55 June and September lows on route to the 1.5108 1st October low.
"The more important 1.5086/1.5000 support, which is the 61.8% retracement and psychological support is likely to provide strong support,” says Jones.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3342▲ + 0.12%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.2889 - 1.2942 |
**Independent Specialist | 1.3155 - 1.3209 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Analyst Anders Soderberg at S.E.B meanwhile argues that the pound could struggle to beat the 1.53 levels:
"This short term move higher will primarily be heading for the recently broken flag floor, which now should act as firm resistance at 1.5360. From there the decline is thought to continue with next a go at the very important 1.5201 support."
Beware a US Economic Fightback
Note that the US economy could well deliver some upside surprises over coming months, something that remains a key risk to further GBP / USD strength.
Despite under-par GDP data released on the 29th of October, there are signs that the weakness may be artificial as underlying components to the GDP data remain strong.
With solid underlying momentum and inventories ceasing to be a drag, GDP growth is poised to accelerate again in the current quarter towards 2.75%.
