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British Pound (GBP/USD) Analysis and Charts

  • GBPUSD bulls are trying to get back above $1.27
  • Strong US data this week could make that harder for them
  • Retracement support looks very solid

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The British Pound continues to edge higher against the United States Dollar as a new trading week kicks off, as it has done for the past eight sessions.

Sterling has been supported by some better news out of its home economy, with markets daring to hope that the recession the United Kingdom entered at the end of last year will be shallow. Investors have also noted the pushing back of bets on interest rate hikes in the US, and reckon that any similar moves in the UK are likely to come later still given the resilience of domestic inflation.

Bank of England officials have proclaimed themselves relaxed about the market guessing that the next move will be a reduction but have not been drawn on when the process might start or how deep any cuts would be.

The coming week could prove trickier for Sterling bulls as it contains very little UK economic news. There will however be some inflation data out of the US, in the form of the Personal Consumption Expenditures series. Its price index is the Federal Reserve’s favorite inflation indicator and signs of ongoing strength here won’t fail to give the Greenback an across-board boost. Another dead-cert market mover will be US durable goods order numbers on Tuesday.

While we wait on those big numbers, Sterling bulls will keep trying to nudge durably above the $1.27 handle, but the longer this takes the more likely it will be that sellers will keep progress incremental.

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GBP/USD Technical Analysis

The Pound is trying the upper limit of a smaller-sub range within its broader trading band. That offers resistance close to market levels at $1.27057, last Thursday’s intraday top.

Above that point February 1’s peak of 1.27510 will come into focus, ahead of the broad-range top at 1.28294, the significant peak of September 24.

Reversals will likely find support at 1.26724, and the range base of 1.25181. Below that retracement support at 1.24936 looks rock solid, as it has been since late November.

IG’s own sentiment data finds traders split on where Sterling goes from here. There is a tendency to bearishness, which is perhaps not surprising after such a run of green daily candles, but it’s not overwhelming at 59%.

This accords very well with the pair’s Relative Strength Index. At 56.2 currently, it’s edging up but there’s no clear sign of overbuying. The Pound could go some way above the sub-range top without triggering an overbought signal and, as the bulls seem confident, that seems the most likely course now.

–By David Cottle for DailyFX


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