GBP/USD Rate Forecast: GBP/USD Poised Higher as Double-Bottom Reversal Pattern Noted

The British Pound is forecast to continue its advance against the US Dollar based on our observations of a reversal pattern on the charts.

GBP starts the new week at 1.3293 and those with international payments are looking at the best conversion agianst the USD since August 4th - the day the Pound plummeted in response to the Bank of England's decision to cut their base interest rate to a record low 0.25%.

The GBP/USD pair has risen in the last week following broadly positive data for the UK economy, which seems to have established that the immediate aftermath of Brexit has not been as bad as many had imagined.

Data over the last few weeks has shown a robust rise in Retail Sales, a positive result for Business Investment and now strong Manufacturing and Construction PMI’s for August.

Traders have responded to this by buying the pound, which has pushed up the GBP/USD exchange rate.

The Dollar meanwhile lost some ground against Sterling after Non-Farm Payrolls (NFPS) on Friday failed to hit the 180k extra jobs expected, coming out at 151k only, this added further impetus to the up move in GBP/USD.

However, the USD was higher against other currencies as markets reckon the disappointing figure will not stop the Federal Reserve raising interest rates in 2016.

In fact, Sterling was the best performer in the G10 family, followed by the New Zealand Dollar and then the US Dollar.

From a technical perspective the GBP/USD chart is telling us more upside is possible having completed a double-bottom reversal pattern at the lows:

This pattern indicates more upside if the exchange rate can break above the neckline for the pattern (see chart below) at the level of the intervening peak between the two trough lows, situated at 1.3300.

A break above 1.33 plus a few points -  so 1.3315 would provide confirmation of more upside towards the target for the pattern at 1.3625.

Another bullish sign is that GBP/USD has already broken above its 50-day moving average at around 1.3150.

MACD is also marginally poking above zero -  a further sign the trend has reversed.

Latest Pound / US Dollar Exchange Rates

	Live: 1.3335▲ + 0.06% 12 Month Best: 1.3789
*Your Bank's Retail Rate	1.2881 - 1.2935
**Independent Specialist	1.3148 - 1.3201 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Big-Hitting Data out of the UK

On the data front, there are two key releases for the pound -  Services PMI on Monday and Manufacturing Production on Wednesday; whilst for the dollar there is ISM Non-Manufacturing PMI, which is expected to remain at 55.5 in the month of August.

UK Services PMI is a survey based metric - which came out at 47.4 in July and is expected to rise to 50.0 in August.

Last week’s shock rise in Manufacturing PMI (from 48.3 to 53.3) and Construction PMI’s (from 45.9 to 49.2) reflected a rebound from the extreme pessimism of July which saw PMI’s fall steeply into ‘contraction’ territory.

The same is expected for Services, however, the extent to which it rebounds may not be quite as much as manufacturing likely benefited more from the weaker pound, making exports more attractive.

Due to upside expectations dominating, the release may result in a further rise for the pair, in line with the technical bias above.

We will then be watching the industrial and manufacturing data from the ONS in mid-week for confirmation that the sector has been boosted by a weaker Sterling. 

Manufacturing Production is forecast by analysts to have fallen -0.4% month-on-month to July from -0.3% in June, according to current expectations.

Quite whether this fits with the rebound found in the recent Manufacturing PMI is not easy to tell, but there is a possibility the July Production figure may not be as negative as forecast, especially given the boost to exports potentially caused by the weaker pound.

US Data and Events

Of potentially more impact could be comments from Fed officials, with San Francisco Fed's Williams the first to remark on the lower payrolls result. What he says about the likely outlook for raising interest rates will be significant.

Also out is the Fed’s periodic economic analysis doc, called the ‘Beige Book’; of this, analysts at TD Securities said:  

“We expect the tone of the report to underscore the relatively subdued economic backdrop, as the upbeat assessment on labor market and consumer spending activity should be partially offset by the continued weakness in business capital investment activity and intentions.”