Pound dollar exchange rate forecast: GBP/USD outlook positive on 17/02, beware a correction lower

By Will Peters

The US dollar exchange rate (USD) complex is soft on Monday following the release of below-expected industrial production data on Friday adding to the recent run of soft US data.

An extension of last week’s bull market, GBP made an aggressive start to the week extending gains versus USD and EUR to fresh year highs.

"For today, with no releases due in the UK or US, there is little to suggest a change in sentiment and we expect the GBP/USD uptrend to resume," say Lloyds Bank Research. A look at the US dollar exchange rate complex shows:

• The pound dollar exchange rate is 0.09 pct lower at 1.6733.
• The euro dollar exchange rate is 0.09 pct higher at 1.3705.
• The US dollar to Canadian dollar rate is 0.1 pct lower at 1.0969.
• The Australian dollar to US dollar exchange rate is 0.05 pct lower at 0.9029.

Note: All USD quotes here refer to the wholesale spot market. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.

Industrial production came in weaker than expected on Friday adding to the recent run of soft US data.

Although this is largely being attributed to the poor weather and expected to be a temporary effect, it has nevertheless weighed on the USD. Inflation numbers, various confidence and housing indicators are due for release this week, along with the FOMC minutes to January meeting.

But given the minutes follows Yellen’s more timely testimony before the House last week, it’s unlikely the minutes will reveal anything new.

For today, with a US holiday and little on the calendar we expect a relatively quiet session ahead.

Pound dollar exchange rate forecast

Concerning the near-term pound dollar exchange rate forecast, Craig Erlam at Alpari UK says:

"The last week was very positive for sterling, rallying 350 pips against the US dollar and forming an almost perfect marabuzo candle on the weekly chart. A gap higher over the weekend added to this bullish tone but that gap has been quickly closed and we’re now seeing it pare some of last week’s gains. It’s not unusual to see a correction in the pair after such a strong week, so I wouldn’t be surprised to see some weakness in the next couple of days.

"The key level will now be 1.6571, the marabuzo line of last week’s candle. A failure to close below here would essentially confirm that we’re seeing a correction and would likely prompt another push higher. Overall, the pair is looking quite bullish and having made a new 51-month high, the next target will be 1.6876 followed by 1.70."

Also forecasting a positive bias in GBP/USD are UBS: "Further support developed as the pair advanced sharply and is trading within striking distance of resistance at 1.6878. A break above which would open critical 1.7043. Support is at 1.6645."

Elsewhere, Ipek Ozkardeskaya at Swissquote Bank says: "Technically, trend and momentum indicators applying to GBPUSD chart are solidly positive. Option bids are seen at 1.6700/55/75 and 1.6800. The key technical resistance is placed at 1.7043 (August 2009 high). The RSI approached the overbought zone (today at 68%) suggesting some downside correction should soon come into play, watch for interesting dip buying opportunities."