1.7: Best GBP/USD Exchange Rate Since the Height of the Financial Crisis is Here

The last time one pound sterling was able to buy the equivalent amount of US dollar's was back in October 2008. At the start of the new trading week we are however seeing the USD offering resistance with the GPB/USD mid-market rate quoted at 1.6891.

At that time sterling was in a steep tail spin lower thanks to crashing financial markets. 5 and a half years later and we are finally back to those levels.

The question is, can the gains continue, or are we doomed to see another slump lower?

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Why is the pound doing so well?

Sterling received a significant boost on the evening of Thursday the 12th June and increased by over a cent against both the euro and dollar.

The Bank of England's Mark Carney announced that the BOE could raise interest rates sooner than the market expects.

Markets are now playing catch-up and have to re-evaluate the GBP by pushing it to higher levels.

What does the future hold?

According to Luc Luyet, analyst at Swissquote Bank:

"In the longer term, a medium-term bullish bias is favoured as long as the support at 1.6661 (15/04/2014 low) holds.

"The persistent buying interest favours an eventual break of the major resistance at 1.7043 (05/08/2009 high).

"Other resistances can be found at 1.7332 (see the 50% retracement of the 2008 decline) and 1.7447 (11/09/2008 low).

Is a decline possible?

According to Stephen Gallo at BMO Capital we should not sit back an wait for a rampant pound to run higher:

"The GBP was understandably firm during the late NY and early London sessions, but supply in front of 1.7000 appeared to cap GBPUSD: for the time being.

"The GBP will firm up from here, but the difficulties associated with tightening policies from their current ultra-loose settings and ‘managing the bubble’ will slow the rise down."

We do also have concerns about the ability of the pound sterling to stay at these elevated levels over coming days.

The reason is because the recent rally suggests the currency is now in overbought territory.

We determine whether a financial product is overbought, or oversold, by using the Relative Strength Indicator (RSI) analysis.

In short, the RSI usually resides between the levels of 30 and 70 with 30 representing oversold and 70 representing overbought.

On the daily charts we note the RSI is at 80! This suggests some kind of corrective action lower will likely take place as the level will have to eventually trend back towards the neutral area around 50.

However, Blackwell Global tell us that:

"Any pullback from the pound is not likely to last very long as the long term outlook is very bullish for the pound, especially when interest rates begin to rise."

Elsewhere the euro is also under pressure against the pound with the EURGBP  likely to follow the channel down.

Blackwell Global reckon a play on the pullback should have a short term horizon.