GBP-USD Verdict: Strength is Fleeting
Forecasts for the pound to dollar exchange rate (GBP-USD) at the start of April confirm any strength should be dismissed as temporary.
However, there are a multitude of possible directional moves that remain possible within various timeframes which will ensure those looking to buy dollars could be offered some respite from time to time.
While no levels can ever be guaranteed, what this article serves to do is to make readers aware of what a good opportunity looks like.
After being one of the strongest performing G10 currencies versus USD in February, sterling performance has reversed sharply to become the worst performer during March.
For reference the pound dollar exchange rate is seen at 1.4787 at the time of writing. Placing the Cable into its historical context we can see the pair is at long-term lows:
The AFEX Verdict: 1.53 Can Still be Breached
- In a currency forecast note, sent to clients at the start of the week, technical analyst Lilian Lillicrap of foreign exchange brokerage AFEX says GBP-USD strength should not be discounted in the short-term:
“A breach of the psychological 1.5000 resistance level can still, if seen, delay an awaited re-test of recent 1.4635 lows but studies nonetheless continue to suggest any such GBP strength is corrective only.
“Upside potential would become readable back to 1.5250/1.5300 again on this basis but the overall technical environment will remain negative unless a break of 1.5550 develops as well.
“Otherwise Sterling prices are likely to test 1.4625/35 support in due course and possibly 1.4300 and 1.4000 before more obvious buying interest surfaces again.
“Additional preparation will probably be needed in order for this latter level to give way but bounces in the meantime are considered untenable with a major base now required to outweigh already existing overhead supply.”
(Please note that all FX quotes here are from the wholesale markets - your bank will affix a spread to the rate to derive profit. However, an independent FX provider will undercut your bank's offer, this can deliver up to 5% more currency in some instances.)
- The Charles Stanley Verdict
Bill McNamara at Charles Stanley says the recent closing low, at 1.4734, looks like a reaction to the trading bottom from 2013, and although that level continues to provide near-term support the fact that sterling is struggling to move away from the lows suggests that further near-term weakness has become a possibility.
McNamara points out that a close below 1.47 would take the pound back to levels not seen since 2010.
- The Swissquote Bank Verdict
Luc Luyet at Swissquote Bank meanwhile notes the breach of 1.48 as being a negative omen:
“GBP/USD has recently moved broadly sideways. However, the recent lower high and the breach of the hourly support at 1.4839 favour a bearish bias. Hourly supports can now be found at 1.4797 (27/03/2015 low) and 1.4689 (19/03/2015 low).
“A break of the hourly resistance at 1.4922 is needed to invalidate our bearish bias. Another resistance stands at 1.4990.
“In the longer-term, the break of the strong support at 1.4814 opens the way for further medium-term weakness towards the strong support at 1.4231 (20/05/2010 low).
“Another strong support stands at 1.3503 (23/01/2009 low). A key resistance can be found at 1.5552 (26/02/2015 high).”
Busy Economic Calendar Could Provide Support
As we head into April the outlook for the GBP is thus dictated by the longer-term downtrend.
That said, the potential for a recovery does exist – we have discussed the various technical levels to watch out for if you are awaiting a stronger GBP-USD.
Regarding fundamentals, watch UK Manufacturing PMI due out on Wednesday and US Non-Farm Payrolls on Friday. The latter in particular is important for the USD complex and any disappointments here could leave sterling with the potential to rally.
Volumes will be thin towards the end of the week but expect action to pick up the following week with the release of both the UK Construction and Services PMI data.