GBP/USD Rate: A Multi-Year Recovery Looms
- Written by: Gary Howes
The GBP/USD has been in decline since 2008 but the cyclical downturn is set to end.
What if the Pound found itself trading at current levels against the US Dollar had the UK voted to remain in the European Union on June 23?
This is an interesting proposition, particularly if we consider that the argument that the multi-year bull-run in the US Dollar will have forced the GBP/USD down regardless of the vote.
Analyst Lucy Lillicrap - a technical analysts at brokers AFEX - believes Pound Sterling weakness in 2016 has merely brought GBPUSD prices into line with other related pairs so far as a maturing USD bull trend is concerned.
The trend has been in place since 2011 and is yet to complete.
In short, there would have been numerous other fundamental triggers leading to GBP/USD's decline had the UK voted to remain in the June 23rd referendum - for instance Sterling may have had an entirely different response to Donald Trump's victory and actually fallen deeply.
In essence we are looking at the age-old debate of whether technical analysis is the purest form of analysis as it absorbs the fundamental 'noise.'
Whatever the case, we are near multi-year lows for GBP/USD.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3323▼ -0.03%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.287 - 1.2923 |
**Independent Specialist | 1.3136 - 1.319 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Dollar Uptrend, GBP/USD Downtrend Soon to Complete
But, the good news for those who have been awaiting a better exchange rate from a Sterling perspective is that this long-term cycle lower will soon complete.
Of course there may be more twists and turns to the Brexit story, from a currency perspective, over coming years but according to technical analyst Lillicrap the propensity for GBP/USD to simply continue weakening on the story is fading.
“The preferred count remains that much of this current cycle has completed already and indeed the encouraging turnaround in many (U.S. Dollar based) commodities already this year points to a more positive environment even for the Pound during 2017,” says Lillicrap.
For GBP/USD over coming days and maybe weeks, Lillicrap says resistance starts at 1.2550 and then 1.2750 areas.
Dips should have support around 1.2300 initially.
Demand is thereafter thin until 1.2100 again next.
However, it is important to note that Lillicrap does see further declines as the current resillience is corrective, at best.
“But, unless the market clearly breaches parity on its next notable sell-off (it should bottom somewhere between 1.1500 and its historic 1.0465 low) the entire downward sequence from 2.1160 will then complete - probably alongside EUR/USD posting a macro floor as well,” says Lillicrap.
According to the technical analyst, the very brevity of current Dollar demand is suggestive of exhaustion and while no obvious reversal is expected in the next few weeks it can be argued many of these USD-based patterns have already witnessed peak velocity.
Lillicrap believes only a succession of stair-cased moves into the end of 2016 will complete the trend and prompt the awaited volte-face which is thus shaping up to be sometime during Q1 2017.
