Selling the GBP/USD Rate is the 'Only Strategy in Town' Says new GBP/USD Forecast

The US dollar exchange rate complex (USD) continues to enjoy the support of a vast sea of global funds that are currently positioned for yet further gains on the foreign exchange market place.

As the latest data on speculative positioning confirms, bets are near record highs that the USD will track higher against the majority of global currencies.

But why should we expect further USD gains in the current evnvironment? And what do forecasts for the main USD-based pairs look like? Below we answer both these questions.

First, the key dollar rates today:

1. The British pound to US dollar exchange rate (GBP/USD) is trading 0.16 pct lower on a day-to-day basis at 1.5978 after Services PMI data came in well below expectations.
2. The euro to dollar exchange rate (EUR/USD) is trading is 0.49 pct lower at 1.2485.
3. The US dollar to Canadian dollar rate (USD/CAD) is 0.22 pct lower at 1.1385.

Ensure you get your ideal rate and don't get stymied by adverse market moves, find out how.

Be aware: The above quotes are taken from the global currency spot market. It must be noted that your bank will widen the spread on the above numbers when passing on their retail rate to customers. An independent currency provider will however guarantee to undercut the bank's offer thus delivering you more forex. Please see more on this here.

US Dollar in Fresh Boost

In the mid-week currency trading session we note the USD is back in favour.

Omer Esiner at Commonwealth Foreign Exchange fills us in:

"The U.S. dollar rallied to a new four and a half-year trade-weighted high overnight after Republicans secured both the House and the Senate. A Republican majority Congress during a Democratic presidency, was last seen in 2006, and is generally seen as a pro-business, pro-economic growth political backdrop.

"In an otherwise quiet overnight trading session, the mid-term election results were enough to give the dollar an across-the board boost. This morning, ADP reported that private sector companies added 230,000 new jobs in October, better than the 220,000 forecast and yet another month of 200K+ jobs growth."

Why the Bank of Japan Has Aided the US Dollar

Driving an improved sentiment amongst global investors in the current market environment is the surprise decision by the Bank of Japan to increase their monthly asset purchases (QQE) - a move which stabilized investors’ fears concerning the potential future growth of the global economy.

The BoJ announced an acceleration of JGB purchases and also tripled their accumulation of ETF and J-reits, the Nikkei rallied over 4% and pulled the rest of global equity indices along for the ride.

This risk positive news came just days after the Federal Reserve ended their own asset purchase program while producing a statement that was more hawkish then markets had priced in.

According to Peter Rosenstreich at Swissquote Forex Services:

"For fundamental foreign exchange trading strategies this means only one thing. Buy USD. The USD was the big gainer across G10 and EM currency space. Gold and oil were also damaged in the USD surge.

"As investors rotated capital back into the US to take advantage of potentially higher yields, strong economic reports (including Q3 GDP growth at 3.5) helped push the shifting curve lower. The divergence path in the developed markets monetary policy will continued be the primary driver of asset prices for the foreseeable future."

Forecasts for the British Pound vs US Dollar

With the above forecasts for more USD strength, it would seem to be counter-intuitive to hear that there are some in the market backing GBP/USD gains.

Credit Suisse tell us they are retaining their view that the GBP/USD will bounce and are targeting a move to 1.6382.

Scotiabank reckon the best bet is to position for sideways action: "GBP is flat to Friday’s close; after briefly trading to a fresh multi‐week low in the Asian session but then recovering on a better than expected manufacturing PMI, which rose to 53.2 (expectation was for 51.4).

"GBPUSD short‐term technicals: mixed—unlike EUR, technical studies for GBP are mixed; and warn of a range trading environment. The October low of 1.5875 should provide support; while 1.6020 provides the first level of resistance."

Forecasts for the Euro vs US Dollar

The European Central Bank's monthly decision looms large this Thursday.

Markets have been selling the euro in anticipation but the ECB will still want to see the effect of additional measures before considering new actions.

This could squeeze the euro dollar rate higher.

However, "we see any rally in EURUSD as an opportunity to reload on shorts," says Rosenstreich.

Giving a technical forecast, Swissquote say:

"EUR/USD has moved below the key support at 1.2501, confirming persistent selling pressures. However, prices are trying to bounce near the support at 1.2466. The short-term bearish momentum is intact as long as prices remain below the hourly resistance at 1.2544 (intraday high).

"Another hourly resistance can be found at 1.2632 (intraday high). In the longer term, EUR/USD is in a downtrend since May 2014. The break of the strong support area between 1.2755 (09/07/2013 low) and 1.2662 (13/11/2012 low) has opened the way for a decline towards the strong support at 1.2043 (24/07/2012 low).

"As a result, the recent strength in EUR/USD is seen as a countertrend move. A key resistance stands at 1.2995 (16/09/2014 high)."

Forecasts for the US to Canadian Dollar

Turning to USD/CAD, "technicals have failed to turn in unison to stronger USD signals; instead they remain mixed, even as spot shifts higher. Near‐term support lies at Friday’s open of 1.1184; while resistance lies at the October high of 1.1385," says Camilla Sutton at Scotiabank.