The GBP/USD Rate is Showing Upside Potential, Could Reach 1.31s

GBP/USD is showing upside potential after last week’s general election-fuelled rally, and we estimate a new target at 1.3115 for the pair.

GBP/USD broke out of the triangle pattern it had been tracing since the October 2016 lows after Theresa May called a snap general election on June 8.

Sterling powered higher – rising over 2% in under 24hrs - following the news as it raised the possibility of either a pro-EU coalition entering government, one half of which would be made up of the Liberal Democrats, or a conservative government with a bigger majority, which would be less likely to be held to ransom by an extreme Euro-sceptic minority intent on a hard Brexit. 

The breakout from the triangle pattern has generated a rough upside minimum target at 1.3115, calculated by taking a 0.618 ratio of the height of the triangle and extrapolating it from the break – but it could go even higher if the height of the triangle at the widest point was taken from the October lows.

For greater assurance, the uptrend will extend higher, we would ideally wish to see a break above the current highs at 1.2909 first.

The R2 monthly pivot at 1.2933 is likely to present an obstacle but the bigger picture favours an extension higher and it is likely to be overcome without significant trouble.

The R1 monthly pivot at 1.2743 will probably provide a level of support for prices, with a break below 1.2700 signalling a deeper correction might be underway.

The MACD momentum indicator in the lower panel is moving higher in line with the exchange rate which is a bullish sign as it confirms momentum is positive and should stay positive for a little longer. 

however, we would ideally wish to see it move above the zero-line for stronger confirmation of more upside.

Key Data to Watch in the Coming Week

For the Dollar: the big release this week will be first Quarter GDP on Friday, (13.30 GMT) which is expected to show a slowdown to a 1.1% rise quarter-on-quarter from 2.1% in Q4.

On Thursday there are Durable Goods Orders and the Goods Trade Balance, whilst on Tuesday Housing data, including the Case-Schiller Index and New Homes Sales are up for release at 15.00, however, none of these are likely to have the impact of Friday’s Q1 GDP estimate, unless they produce significant outliers.

For the Pound: look out for GDP data on Friday (09.30 GMT) when the preliminary estimate for the first Quarter is released, and expected to show a slower 0.4% pace of growth compared to the previous period but an elevated 2.2% increase year-on-year (that is compared to Q1 in 2016).