Pound-Dollar X-Rate at 5-week High, Analysts Consider the Next Targets

British Pound looking more constructive

Image © Lakov Kalinin, Adobe Stock

- "We look for a challenge of the 1.3173 July 30 high" - Karen Jones, Commerzbank

- "Prices are now starting to push through important resistance in the 1.3050 region" - Robin Wilin, Lloyds Bank

- "This is a recovery that is building nicely now" - Richard Perry, Hantec Markets.

Further signs the E.U. is pressing for a deal on Brexit by November are currently providing Sterling with support; and analysts are suggesting further gains might be achievable near-term.

"Since markets had already written off an agreement before the 18-19 October summit, which was originally seen as a deadline, the prospect of a possible agreement within eight weeks led the GBP to rise 0.8% against the USD and 0.4% against the EUR. We see potential for a continuation of the rally if further evidence in favour of a deal materialises," says Kathrin Goretzki a FX Strategist with UniCredit Bank in London.

EU negotiator Barnier’s comment on Monday, September 10 that an agreement could be reached in six to eight weeks provided further impetus allowing the Pound to rise to 1.3070 at the time of writing; its highest level in over a month.

The comments follow two other notable pieces of positive guidance made by Barnier in the preceding week and have markets realising they might have been too pessimistic on the direction of travel of negotiations of late and committed too heavily in trades against the currency. "CFTC data suggest the market had got itself very short of GBP again by the end of September and if those positions are unwound, there's potential for the Pound to benefit," says Kit Juckes, a foreign exchange strategist with Société Générale in London.

Momentum appears to be with Sterling.

At the time of writing, the Pound-to-Dollar exchange rate is seen trading at 1.3066 on the inter-bank markets - the highest level since August 02. Importantly, specialist currency providers are now seen offering rates for international transfers above 1.30 again. International payments at high-street banks are however being quoted in the region of 1.2580-1.2670.

"GBP/USD is starting to erode key short term resistance offered by the 55 day ma at 1.3015 and the 23.6% retracement at 1.3066," says Karen Jones, a technical strategist with Commerzbank. "These are looking exposed."

"It increasingly looks to have based from a slightly longer term perspective recently at 1.2662. Above 1.3066 we look for a challenge of the 1.3173 July 30 high and the 1.3363 9th July high," adds the analyst.

Concerning further near-term targets, Jone cites minor resistance at the 1.3102 late June lows as being a prospect.

A move above the 1.3363 July high would imply a deeper corrective phase to the 1.3473/1.3534 June high and 200 day moving average."

Robin Wilkin with Lloyds Bank notes GBP/USD is "now starting to push through important resistance in the 1.3050 region, but "a decline back through 1.2960/30 would disappoint, suggesting a false break and prices moving backinto a lower range around 1.2850."

GBP to USD rate

However, while above 1.2850 Wilkin looks for a push towards "more important resistance in the 1.33-1.35 region."

Richard Perry, a foreign exchange analyst with brokers Hantec Markets says in the past four sessions there has been a desire to buy Sterling on any weakness.

"This culminated in yesterday’s strong bull candle which broke above the August high of $1.3045, but also above the 55 day moving average (currently $1.3015) for the first time since April," says Perry. "This is a recovery that is building nicely now."

Hantec GBPUSD chart

Image courtesy of Hantec Markets.

Perry is eyeing a potential move to $1.3095 today.

"Yesterday’s close above $1.3000 is also an important move, even if it is only psychological. The next resistance is the lower high of $1.3215 from late July," adds the analyst.

Furthermore, momentum indicators are progressing well in the recovery, with the RSI the highest since April, the MACD lines accelerating at near five month highs and the Stochastics rising in bullish configuration. This suggests using intraday weakness as a chance to buy.

"The hourly chart shows $1.2950/$1.3000 as a near term basis of underlying demand and a support band for minor corrections now. Support at $1.2870/$1.2895 is growing in importance now," adds Perry.

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