GBP/USD Downtrend Forecast to Continue, 1.5250 is Obvious Target

Strength in the British pound (GBP) against the US dollar (USD) should be considered as being a temporary blip according to a recent assessment of the GBP/USD pair.

Sterling remains under pressure having failed to consolidate around the 1.5700 USD level in recent days - traders would have grown more confident had they seen stronger buying interest in the pound increase at this round number.

Our last quote on the pound to dollar pairing sees the GBP/USD conversion exchange rate at 1.5760 as a near-term corrective move higher shapes up.

The Path of Least Resistance

Driving the GBP/USD exchange rate lower is the all-round pro-USD investor environment, in place since mid-year.

The below graphic shows just how clean the move has been for the dollar against the pound (image courtesy of Afex):

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According to Lucy Lillicrap, a risk manager at currency brokerage Afex, the outlook continues to favour the USD over the GBP and a test of 1.5250 is possible:

"If prices can reverse back above the psychological 1.6000 level an intermediate floor might still form here but otherwise rebounds are seen as corrective only.

"Resistance begins at 1.5850 and though some support is apparent towards 1.5500 this leaves room for further GBP weakness over coming sessions.

"Moreover effective demand now appears thin until nearer 1.5250 and given the dominant U.S. Dollar environment discussed elsewhere values will probably struggle to sustain fresh rallies in any case.

"If 1.600 is penetrated a bottom should exist already for 2014. However, elsewhere broader negative technicals imply renewed weakness next year regardless."

US GDP Data Boosts USD

The dollar was boosted against the British pound on Tuesday when the US economy was shown to have grown at a seasonally adjusted annual rate of 3.9 pct in the third quarter.

The Commerce Department had previously estimated the third quarter’s growth rate at 3.5 pct.

Dennis de Jong, managing director at UFX.com says the US Federal Reserve will be justified in bringing forward dollar-suportive interest rate hikes in 2015:

"The GDP figures announced this morning form part of an increasingly rosy picture for the US economy. Janet Yellen will rightfully be thrilled with the growth shown since the last release of data, which defied expectations and nearly broke through the magical four per cent mark.

“US consumers have many things in their favour at present. Retailers will rightfully be bullish ahead of the traditional holiday shopping kick-off event Black Friday, as remarkably low gasoline prices fill the pockets of consumers with unexpected cash.

"The question remains, can retailers keep the tills ringing in the run-up to the holidays if OPEC announces a cut in production on Thursday?”