GBP/USD Support Breaks Down, GBP/USD Forecast Suggest 1.6400 Could be Hit

A recent analysis of the exchange rate confirms that momentum has finally returned to the USD and there is likely very little the GBP will be able to offer in reply.

Before we look at the forecasts we see the pound to dollar rate trading @ 1.6567. It would seem that the short-term bounce received following the release of the latest set of Bank of England minutes has started to wane.

If you are holding out for better exchange rates then don't hesistate, ensure your FX provider has the relevant buy order in place for when your rate is achieved. Likewise, if there is a threshold you are not willing to cross to the downside ensure stop-loss orders are in place. Please learn more here.

Support for sterling dollar breaks, more downside ahead?

The tone on the GBP/USD has shifted to bearish in recent weeks; however it is only now that we can start to be more confident on the negative outlook.

Why? Because a key level of support has recently broken.

"GBP/USD has broken the key support at 1.6693 (also the 200 day moving average). The short-term technical structure is negative as long as prices remain below the resistance at 1.6757 . Another resistance lies at 1.6844," says analyst Luc Luyet at Swissquote Research.

But is the longer-term picture any better?

We do note some analysts are confident the longer-term outlook is constructive for the GBP/USD owing to the longer-term trend higher that has been in place for much of 2014.

Many would see the current dip as a buying opportunity. However, Luyet is not convinced:

"In the longer term, the break of the key support at 1.6693 invalidates the positive outlook caused by the previous 4-year highs.

"However, the lack of medium-term bearish reversal pattern and the short-term oversold conditions do not call for an outright bearish view. A key support now stands at 1.6460."

Swissquote have now removed their buy strategy on the pair.

More losses ahead say Commerzbank

Also backing the negative case on GBP/USD is Karen Jones at Commerzbank:

"GBP/USD’s swift descent has resumed with it currently testing the 61.8% Fibonacci retracement at 1.6611. Below it lie the 1.6585 late February low and the 1.6558 April low en route to the 1.6467/54 March low and 78.6% Fibonacci retracement.

"Longer term we eventually look for losses back to 1.6000. Minor resistance above the 200 day moving average at 1.6674 can be seen along the two month downtrend line at 1.6748. While capped by it, GBP/USD will remain directly offered."

Can the fundamentals help?

So the technical picture is telling one story, is the fundamental outlook any better?

"The release of BoE minutes sent cable soaring in morning London trade today after they revealed a surprisingly hawkish bent with two MPC members voting for a rate hike. The 2-7 vote shocked the currency market with consensus expecting the BoE to remain at 0-9," notes Boris Schlossberg at BK Asset Management in response to the flurry of buying interest following the release of the latest MPC minutes at the Bank of England.

The idea at play is that currency markets have to be at a level that correctly reflects interest rate yields in the sovereign bond markets.

The GBP has enjoyed a rally in anticipation of the first Bank of England interest rate hike which could come around the end of the year.

This was confirmed by today's Bank of England Minutes that showed 2 out of 9 interest rate setters voted to raise rates.

However, the US Fed is also due to raise rates in 2015, we could be in a scenario where neither the US or UK will enjoy any significant yield advantage.

We would suggest that a new sideways range will be shown in the sterling dollar rate going forward.