Pound to Break Higher against Dollar Suggest Chart Studies
The Pound to Dollar exchange rate continues to oscillate within a range established since the recovery from the October 2016 lows were rejected.
The currency pair is quoted at 1.25 at the time of writing and is therefore currently towards its range highs.
Our studies suggest there is a slightly higher probability of a breakout above the range highs than below the range lows.
On the weekly chart, we note both Momentum and MACD indicators are rising even though the exchange rate is only going sideways, indicating evidence of underlying strength, and that the bulls have the upper hand.
The week of the recovery following the lows in October (circled in red) looks like it may have marked a major long-term low, suggesting more upside on the horizon.
A break above the range highs and the R1 monthly pivot at 1.2837 would signal a high probability of an extension to an initial target at 1.3000.
Such a move, however, would require confirmation from a break above the 1.2900 level as there is a risk that below there the rate could pull back into the range again.
Analyst Robin Wilkin at Lloyds Bank Commercial Banking meanwhile sees a more sideways-orientated bias continuing.
Wilkin says markets are illiquid and skittish at the moment as is often the case when price action is focussed at the mid-points of ranges.
Events to Watch Over Coming Days
On Thursday we have commentary from US Federal Reserve official James Bullard, although his comments may be of limited impact as he is not a voting member of the FOMC.
Friday sees a data dump for the Pound with the Trade Balance, Manufacturing and Industrial Production (9.30) all in the loop.
We will be looking for an improvement in the UK's trade position owing to fall in Sterling over recent months.
Of interest will be just how well the UK's manufacturing sector is performing - any strong performance here could convince markets the Pound can go higher.
The US meanwhile sees the release of the Import and Export price indices (13.30) and the Michigan Sentiment Survey at 15.00 GMT.
Currently most valuation models see the Pound as overvalued and therefore at risk of devaluing further against the Dollar.
Currently, most valuation models see the Pound as overvalued and therefore at risk of devaluing further against the Dollar.
