GBP/USD Projections: Analysts See Recovery Hitting 1.58

Modified: Wednesday, 03 December 2014 09:22 GMT
Written by: Sam Coventry

The British pound to dollar (GBP/USD) exchange rate continues to recover after months of selling pressure and is in the process of forming a base.

This report on the pound to dollar pair brings together the views of a number of leading analysts and examines just how high the current move could extend based on technical considerations.

Are there significant gains ahead or is this just a blip in the longer-term sell-off?

For reference, we see the following pound and dollar rates today:

The pound to US dollar exchange rate (GBP/USD) conversion is 0.05 pct higher on a day-on-day basis having reached 1.5647.
Conversely, the US dollar to pound sterling (USD/GBP) conversion is at 0.6388.

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Latest Projections for the sterling dollar rate

Recent trade is visualised in the following graphic and illustrates how supportive 1.56 has been:

Goldman Sachs

We maintain shorts via cash and options but have scaled back ahead of main risks events in the week. Cable should now stall on rallies back towards 1.5722/37. Support at on (YTD) lows of 1.5585.

Morgan Stanley

We expect GBP to remain soft against USD, but look for it to outperform EUR. Data in the UK remain reasonably robust, but underlying concerns still remain – investment was soft in the latest GDP release, and Governor Carney believes that inflation could decline below 1% in the future.

That said, there have been more hawkish comments from the BoE recently, which contrasts from the dovish tone coming from the ECB, and should pressure EURGBP.

Credit Suisse

Analysts at Credit Suisse look for the trend to turn lower towards the cycle lows at 1.5593/90.

GBP/USD has found a cap on approach towards the price and falling trendline resistance from the July high at 1.5868/75.

We look for an extension of weakness towards the recent cycle lows at 1.5593/90. Capitulation of the latter should signal a resumption of the bear trend for 1.5564 next, and then the lows of August 2013 at 1.5429/22. With the 78.6% retracement of the 2013/2014 bull trend not far below at 1.5322, we look for a base here.

Resistance shows at 1.5772 initially, followed by 1.5827. Above 1.5868/75 is needed for a better recovery to 1.6184.

Credit Suisse maintains a short pound dollar position targeting 1.5430.

ForexTell

An impressive rally in Cable today. After testing the 1.5585 support level for a third time in the early Asian session, the pair is now back above the key 1.5735 resistance level. While supply from real money names have capped the topside pre-1.5750 so far, a daily close above 1.5735 could confirm the triple bottom at 1.5595 and pave the way for another 1.5820 test.

I wouldn’t rush into buying Cable at those levels, but rather wait how it will behave into the daily close and whether momentum can be sustained north of 1.5735.