The game is up for the pound to dollar exchange rate recovery - GBP/USD has broken through key support zones and a run back to the 1.50 support area and below could well be on the cards.
"Wedges often reverse the full extent of their moves so in this case, the market should eventually return to ~1.50." - Goldman Sachs client note.
We have been warning that sterling-dollar had reached a crossroads; and the bad news for those currency watchers hoping for a stronger pound is the downside has prevailed.
“Cable fell victim to overall dollar strength with the pair drifting to session lows at 1.5325 as the other majors saw some pressure as well with EUR/USD coming close to the 1.1100 mark,” says Boris Schlossberg at BK Asset Management referring to a pro-USD environment.
Schlossberg notes the market is clearly back to buying dollars as traders anticipate that the latest batch of US data will prove supportive to Fed-hike-in-June scenario.
At the time of writing we see the pound to dollar exchange rate conversion trading 0.63% lower on a day-to-day comparison at 1.5246.
The declines in the pound sterling should ultimately be placed within the paradigm of a market that is ever-hungry for dollars, as discussed in our latest exchange rate forecast note.
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ADP Data Disappoints, But That Does not Stop the Dollar Buyers
A clear indication as to the markets desire for USD is given by the currency's scant regard for a weak employment reading.
“The white knight of a strong US open bolted this afternoon after weak ADP non-farm employment change data. The preliminary non-farm figure came in at 212k, missing forecasts by around 9,000 jobs and leaving the health of Friday’s government figure in doubt,” says Connor Campbell at Spreadex.
One way of explaining the dollar’s rally in the face of weak employment data is that the US Federal Reserve is more interested in inflation data as a signal to their first interest rate hike of 2015.
Furthermore, Campbell concedes that, “this dour ADP release comes with some caveats; firstly, January’s figure saw a robust revision, with 50,000 new jobs added; secondly, the ADP hasn’t been all that accurate with its initial estimates, i.e. pre-revisions, in the past 5 months, leaving the chance for yet another impressive non-farm release come the end of the week.”
So by all accounts, it will take some incredibly negative data to snuff out the dollar bull-run.
Technical Forecasts Point to Further GBPUSD Losses
As the dollar moves higher so we see big-name analysts calling for an extension of the move lower in pound-dollar.
Goldman Sachs, in their latest technical outlook say:
“GBP/USD had a false break lower into the end of last week but ultimately still looks wedge-like and therefore corrective.
"The entire move since the Jan. 23rd looks corrective/counter-trend. Furthermore, a bearish key day reversal formed last Thursday’s test of the 100-dma.
"Wedges often reverse the full extent of their moves so in this case, the market should eventually return to ~1.50. A daily close below the 55-dma (now at 1.5326) will increase the likelihood of this happening.”
Also predicting more losses for the pair is Barclays:
“A move below our initial targets near 1.5315 would help to confirm our bearish view towards the 1.5200 area and then the 1.4950 range lows. A move below 1.4950 would signal lower towards 1.4815, the lows of 2013. Resistance in the 1.5555 area.”
So, unless we get a game-changer by way of negative US data, the outlook appears to be resolutely negative for the UK currency against the Greenback.