Profit-Taking Halts British Pound's Advance Against US Dollar but Rally not Dead Yet
The Pound to Dollar exchange rate's rally is tipped to fade this week as the GBP/USD approaches heavy selling interest located at the 50 day Moving Average but bulls will note the technical picture for the pair remains constructive.
GBP is softer against the USD at the start of the new week with the pair being quoted at 1.2540 at the time of writing.
This is down from the previous week's high at 1.2672.
GBP/USD has made a solid recovery from the post-flash-crash lows of 1.1450, to reach tough resistance from the 50-day moving average (MA) at 1.2672.
"After rising for 3 straight trading days, sterling finally buckled under the weight on dollar strength. With no major U.S. or U.K. economic reports released today, the pullback in GBP/USD was purely a function of profit taking after a run to 1.2650," says Kathy Lien, Director at BK Asset Management in New York.
If Lien is correct and this is indeed profit-taking then there remains the prospect that the longer-term rally extends.
The short-term trend is now up and likely to extend but there is the question of the 50-day moving average providing a tough barrier to further upside.
A break above the moving average, confirmed by a break above 1.2700, would probably confirm more upside however.
GBP/USD could then edge towards a target at 1.2840 where the R1 monthly pivot is likely to provide another barrier to more upside.
Monthly pivots are levels watched by traders where prices often pause or rebound.
Traders often use them as areas in which to fade the trend, placing orders which are counter to the dominant directional bias, in anticipation that the pivot will produce a rebound.
"As highlighted last Friday, daily closing above 1.2550 would shift the neutral outlook for GBP to bullish. The upmove has been rather rapid and appears to be overextended especially from a shorter-term perspective. That said, as long 1.2400 is not taken out, there appears to be room for further extension to 1.2770," says a note released by UOB at the start of the new week.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3323▼ -0.02%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.287 - 1.2924 |
**Independent Specialist | 1.3137 - 1.319 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Data, Events to Watch for the Dollar
The event highlight of the week for the Dollar is likely to Federal Reserve Chairwomen Janet Yellen's testimony to Congress on the economic outlook on Thursday, November 17 at 15.00 (GMT).
Her words will be scrutinised closely for hints as to whether she will raise interest rates in December as is currently expected by the overwhelming majority of analysts.
Probably more importantly however will be any indications regarding interest rate rises over the longer-term horizon.
As the impact of the Trump election fades market attention will likely start turning back to ecnomic data.
Core CPI in October, is another key release out on Thursday at 13.00.
Markets are betting that a strong Trump stimulus will yield higher rates of inflation in over coming years.
As can be seen from the chart below CPI has been steadily rising, and a further 0.2% rise in October, will continue the trend.
Rising core inflation, which means inflation without volatile food and fuel elements, is likely to spur a rise in the Dollar.
Producer Prices, released at 13.30 (GMT) on Wednesday 16, are expected to show a 0.3% rise mom in October and are also an important signifier of future inflation expectations.
Although the Fed is now almost certain to raise interest rates at its December meeting an unexpected rise or fall in the data could impact on those expectations.
Rapidly rising inflation could lead to the formulation of a steeper interest rate trajectory by the Federal Reserve, in which it increased rates more rapidly than is currently assumed.
Higher interest rates are likely to support the dollar as they attract more capital flows from international investors attracted by the higher returns.
US Retail Sales Also Eyed
US Retails Sales are released on Tuesday, November 12, at 13.30, and are forecast to rise by 0.5% mom in October.
Core Retail Sales, released at the same time, are forecast to increase by 0.4% mom.
The Philadelphia Fed Manufacturing Index is released at 13.30 on Thursday, November 17, and is forecast to come out at 8.0 in November.
US Building Permits (Oct), released on Thursday, November 18, are expected to decline to 1.198m from 1.225m.
Inflation Dominates Outlook for Sterling
The main release for the Pound in the coming week is CPI (yoy) in October, which is forecast to rise 1.1% in October (from 1.0% previously), and is published at 9.30 on Tuesday, November 15.
Inflation already showed a strong 1.0% rise in September and if it continues to increase it will probably lead to an appreciation in Sterling as it will lessen the probabilities of the Bank of England (BOE) cutting interest rates in December.
Average Earnings on Wednesday may also be significant as an indicator of inflation pressures.
A rise of 2.4% in wages (excluding Bonuses) is forecast in the data from September.
The data is released along with the Unemployment Rate and Claimant Count (expected to show a rise of 2k jobs) on Wednesday, November 15 at 9.30.
The week rounds off with Retail Sales on Thursday at 9.30.
The data for October is expected to show a 0.5% rise mom.
The Economic Calendar
24-Hour Outlook: Inflation Eyed as British Pound Looks to Hold Ground Against Euro and US Dollar
Monday, 14 November
02:00 – China industrial production
10:00 – Eurozone industrial production
10:00 – UK inflation report hearings
Tuesday, 15 November
12:30 – Reserve Bank of Australia meeting minutes
07:00 – German preliminary Q3 GDP data
09:30 – UK inflation CPI inflation
10:00 – Eurozone flash GDP
13:30 – US retail sales
Wednesday, 16 November
09:30 – UK unemployment, wages
13:30 – US producer price inflation
15:30 – US crude oil inventories
Thursday, 17 November
00:30 – Australia unemployment data
09:30 – UK retail sales
09:30 - Eurozone CPI inflation
12:30 – ECB monetary policy meeting accounts
13:30 – US CPI inflation, weekly unemployment, Philly Fed manufacturing
Friday, 18 November
13:30 – Canada CPI inflation
