- Dollar Rates Today: GBP/USD = 1.2604 EUR/USD = 1.0567 USD/CAD = 1.3182
The Pound to Dollar exchange rate (GBP/USD) is tipped to remainheavy into the new year as a key resistance point melts with a bullish USD outlook.
The Pound spiked higher in the wake of the European Central Bank's announcement that it would extend its Asset Purchase programme into 2018 at a greater pace than markets were expecting.
The bounce higher was however swiftly knocked on the head by the US Dollar which sent a subtle reminder to Sterling bulls that they are at rarified hights as it is.
We noted recently that the GBP/USD exchange rate appears unable to crack above the downward-sloping 100 day moving average.
It appears that on each attempt to breach above here, selling interest intensifies.
Indeed, the spike following the ECB meeting on Thursday again failed at this point reinforcing the lacklustre tone to GBP/USD and the importance of the 100 day moving average, signified by the red line below:
In short, the GBP/USD's longer-term trend remains negative until such a time as this level is cleared.
“The market pushed a little higher than we expected yesterday, peaking around 1.2705 before coming back under pressure. That is now key resistance, as a move back through there would suggest another test of the 1.28-1.30 medium-term resistance region,” says Robin Wilkin at Lloyds Bank.
While under this resistance Lloyds look for a test of trend line support at 1.2480, with a break there opening pivot support in the 1.2330/1.2300 region.
“As part of the medium term range we are expecting to continue to play out, broadly between 1.20 and 1.30,” says Wilkin.
Pound Vulnerable to Profit-Taking into Year-End
The Pound has been an outperformer on global foreign exchange markets since the election of Donald Trump as US President.
GBP has been the only G10 currency that has done better than the USD since the US elections.
The GBP/USD exchange rate has steadily recovered from the lows garnered during the October 7 flash-crash and has built a steady momentum to the upside.
This is not surprising to some.
“We have been long GBP since the flash crash, as we saw room for positive political news, the market short position was stretched and the data was persistently good,” says Athanasios Vamvakidis, an analyst with Bank of America Merrill Lynch Global Research.
However, the rally should fade over the near-term argues Vamvakidis, a view that echoes that held by Lloyds’ Wilkin.
“Brexit uncertainty remains high and GBP could now be vulnerable to some end-year profit taking ahead of Article 50 activation early next year,” says Vamvakidis.
The view contrasts somewhat to our recent coverage of the viewpoints held at Credit Suisse where the fading of political risks has seen analysts turn more optimistic on Sterling's prospects.
USD: Bullish Dollar Trend Looks set to Continue
Also likely to keep GBP/USD strength in check is the bullish USD side of the equation.
The Institute of International Finance (IIF) estimates that over $2trn of assets have switched from bonds to equities since Trump’s election.
In addition the very high cash stock-piles of the buy-side are now being put to work.
“This trend looks unlikely to change in the near term as investors await Trump’s plans for fiscal stimulus early next year,” says Christopher Turner at ING in London.
Turner tells clients that he is bullish on the Dollar’s prospects going forward and favours selling GBP/USD at around 1.2625.
At the time of writing the Pound to Dollar exchange rate is at 1.2613 so any near-term spikes would offer an opportunity if Turner’s view were to be actioned.