Pound-to-Dollar Rate Uptrend Still Intact and Set to Extend say Analysts

Image © Melinda Nagy, Adobe Images 

- GBP/USD took a battering in March but uptrend is intact.

- EU withdrawal agreement progress triggers recovery.

- Break back above 1.31 is key to further gains.

The Pound-to-Dollar rate has fallen more than one percent this week but the longer-term uptrend remains intact and signs of progress in the Brexit saga are on the verge of triggering a renewed leg higher.

Sterling's March fall took the Pound-to-Dollar rate below some key technical levels, suggesting the market might now have lower to go. However, Hantec Markets says now is not the time for bulls to throw in the towel just yet. 

Richard Perry, a market analyst at Hantec, says the 1.30 level is one particular ‘line in the sand’ to watch out for. He argues that a fall below there would have serious adverse consequences for the Pound but as long as the market holds above 1.30, the outlook remains constructive.

"The key gauge for sentiment remains $1.3000 on a closing basis, and yesterday’s strong move has not breached this as support. Bulls will be keen to rebound above $1.3100 again quickly (an old pivot). For now the hourly chart shows that this move is just a warning, and the momentum indicators are looking to unwind some of the move lower,” Perry writes, in a blog Friday.

Above: Hantec Markets analysis of Pound-to-Dollar rate.

Perry's comments came before former Brexit Secretary Dominic Raab said in the House of Commons Friday that he will now support the Prime Minister when the withdrawal agreement is put to a vote among lawmakers at 14:30.

As many as eight Labour Party MPs are also said to have been swayed by suggestions the government might be open to considering opposition ideas on the future relationship. "Indicative votes" covering a range of potential options will be held next week. 

The exit treaty must be approved this week or the UK will receive from the EU an Article 50 extension that runs only until April 12, at which point the PM will choose between requesting a much longer extension that would require participation in the EU parliament elections, or a so-called no deal Brexit.

“GBP/USD has eroded the 3 month uptrend at 1.3065 but continues to hold the 200 day moving average at 1.2980 and for now we are unable rule out the idea of recovery. However it should be noted that downside risks are growing and intraday rallies are likely to struggle at 1.3165/75," says Karen Jones, head of technical analysis at Commerzbank.

Not all are as optimistic as Perry and Jones though. Peter Stoneham, an analyst at Thomsom Reuters, notes that weekly charts are showing a “significant retreat” from the “thick and falling cloud”. 

Stoneham refers to the Japanese Ichimoku cloud, a useful determinant of changes in trend direction, whereby prices are trending when they are clearly above or below the ‘cloud’ indicator. 

Above: Pound-to-Dollar rate shown at weekly intervals, with Ichimoku cloud.

Also of concern to those looking for a higher Pound is a potential break below the trendline drawn from the early January lows since these are also a sign that the trend may be turning lower.

Reuters' Stoneham is betting on a fall down to the 1.2960 area, after having turned bearish on the Pound-to-Dollar rate when it was back up around 1.3216. He has a stop-loss set at 1.3135.   

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