GBP/USD Rate Could be About to Hit its Limit
The British pound has rallied back above the 1.50 exchange rate against the dollar following a positive run that has taken in the past 11 trading days.
The move higher from the mid-April low of 1.4566 comes despite a plethora of warnings concerning the uncertainty surrounding the upcoming General Election.
While the pound to dollar rate (GBP-USD) has proven resilient, we hear a number of analysts suggesting that now is the time to fade the move higher.
Timing is Everything
For those retail clients looking to buy US dollars now could well be the time to cash out of GBP.
We are looking at the best levels in 11 days and with the rate back above 1.50 and volatility looking such a move would look wise.
For those looking to profit via a speculative trade, timing is everything.
“Based on how GBP/USD traded leading up to the 2010 election, we could see further consolidation and possibly strength before a crash,” points out analyst Kathy Lien from BK Asset Management.
It is noted that in 2010 the pound dollar exchange rate trended higher and consolidated before settling on a decline starting April 27th.
In the run up to the election, GBP/USD dropped 300 pips.
On election day it dropped 400 pips and then another 500 pips in the 2 weeks that followed.
History Repeats
Bank of America Merrill Lynch have meanwhile told clients the pound dollar rate is tracking moves made in 2010.
“The price action comparisons for GBP/USD spot in 2010 vs 2015 look a lot more encouraging for our current trading strategy to be short GBP/USD via a 1mth ratio put spread,” says Kamal Sharma, FX Strategist at BofA.
As the below chart highlights, GBP/USD came under more sustained pressure in the 10 days before the election in 2010.
“The price action in 2015 bears a striking resemblance and encourages us to reiterate our strategy heading into Ma 7th,” says Sharma.
Above: GBP/USD price action, 2010 vs 2015 General Elections. Jan = 100
When to Sell the GBP/USD?
According to Lien, if you share their view that sterling will fall ahead of and on the back of the May election, then the best place to sell GBP/USD would be between the 100-day and 50-day SMA shown in the chart below.
The pound sterling is trading in soft fashion as we head into the latter sessions of the week after UK retail sales disappointed.
Retail sales ex-fuel were up only 0.2% M/M in March (mkt +0.5%), and headline sales recording a surprising -0.2% decline (mkt +0.4%).
Fuel sales were down -6.2% on the month, which is what pushed the headline figure so much lower.
The other details looked better with big gains in clothing/footwear and household goods stores, but softness in the "other stores" category.
So the underlying data here is a bit stronger than the headline would suggest.
