Why the British Pound to Dollar Rate’s ‘Quiet Recovery’ Could Extend

Why the British Pound to Dollar Rate’s ‘Quiet Recovery’ Could Extend

29 March 2016, 13:14
Vasilii Apostolidi

The Pound has been making a quiet recovery over the past week, with the UK currency tracking marginally higher against the Buck over that time frame.

Thus far re-emergent GBP strength is still corrective in nature - i.e gains are not necessarily sustainable. 

Unless key resistance at 1.4675 gives way a broader descending sequence remains intact here.

"The past few weeks rally attempt looks complete already around 1.4500 and technical studies argue psychological support in the 1.4000 area is vulnerable to attack again initially. Once this gives way new cycle lows should follow with broad downside risk toward 1.3500 thereafter. Only above 1.4670/80 implies an important base is already in place," notes analyst Lucy Lillicrap at Associated Foreign Exchange.

There is still however the chance that the near-term recovery could advance.

We have already analysed the GBP/USD today in the context of the meeting of the exchange rate with both the 20 and 50 day moving averages; we argue a successful break above these levels could open the door to a more sustained move higher.

Views are however mixed and our positive slant is questioned elsewhere, hence the forecasts presented below.

It does look like the success of a move higher in sterling depends largely on what happens to the dollar.

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The US dollar has been supported by both safe-haven flows as a result of the Brussels terror attacks, as well as surprisingly positive comments from US Federal Reserve officials in recent days.

Market attention this week is focused primarily on Friday’s US employment report, especially in light of recent comments from US Fed officials that an April rate hike is a possibility.

What does the outlook hold for sterling-dollar then? We have asked some of the leading lights in currency forecasting for their views, and this is what they have told us.

Forecasts for the Pound v Dollar

Head of Technical Analysis at Societe Generale, Stéphanie Aymes believes the rebound in sterling will likely only be limited in scope:

“GBP/USD has breached a multiyear upward channel support (1.46) and looks headed towards graphical levels at 1.36/1.35 (lows of 1986, 2001, 2009).

“Long-dated indicators are close hitting a floor pointing towards possibility of consolidation once these levels are achieved. 1.46/1.4670 should cap short term rebound.”

Richard Perry at Hantec Markets says 1.40 should be the level that arrests any weakness over coming days:

“After a period of dollar strength helped to drag Cable lower again, the outlook has become somewhat mixed once more after yesterday’s candle added over 120 pips for the bulls.

“The daily momentum indicators do not really know what to make of the recent trading on Cable as it has been all rather messy and there is little real trend that has developed over the past few weeks.

“Today’s session needs to validate the strong bull candle to at least a certain extent, otherwise the pressure will return back on the key support at $1.4050. The Fibonacci retracements of $1.4051/$1.4514 are still acting as interesting turning points on the hourly chart with 50% at $1.5283 capping yesterday’s high , whilst 76.4% at $1.4160 is supportive now.”

LMAX Exchange are ultimately biased lower:

“The recovery rally out from a recent 7 year low has stalled out ahead of key resistance at 1.4668, potentially setting the stage for the next major lower top and bearish resumption.

“A daily close below 1.4053 will strengthen this outlook and expose a retest of 1.3836, which guards against the multi-year base at 1.3500 further down.

“Back above 1.4668 would be required to take the immediate pressure off the downside.”


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