1.30 to Test Pound-Dollar Rally as Technical Rally Extends
Pound Sterling has shrugged off worse-than-expected GDP data and is continuing to rise to fresh seven-month highs against the Dollar.
But, analysts are now asking themselves whether the Pound to Dollar exchange rate is now close to peaking.
Data showed Q1 economic growth slightly missed expectations, coming out at 2.1% when it had forecast to come out 2.2% quarter-on-quarter.
Although GBP/USD fell by roughly 15 hundredths of a cent to 1.2914 on the news, the pair soon bounced back to its current trading level at 1.2947 suggesting that for now economics are to play second-fiddle.
“At this point, the trade in cable is purely momentum driven. The market is basically making a bet that the hard Brexit terms upon which UK appears to be headed will not be nearly as damaging as originally thought. Such optimism may be premature but for now, sentiment reigns supreme," says Boris Schlossberg, Director at BK Asset Management in New York.
However, some analysts are guessing whether the pair is close to topping.
Lloyds Bank Commercial Banking’s Robin Wilkins thinks the pair may be close to peaking, saying that with, “intraday momentum running at overbought levels and the 1.30 region as good resistance,” he and his team, “remain on high alert for a turnaround.”
“Sterling bears facing a short squeeze today as the pound ramped up against the dollar ahead of the GDP numbers and sustained gains despite the data not excelling. With the market so heavily short some sellers are giving up the ghost but finding bid clear of $1.30 will be hard in the near-term," says Neil Wilson, an analyst with ETX Capital.
Taking a more bullish line is Commerzbank’s market technician Karen Jones.
“GBP/USD’s near-term outlook is bullish: sterling remains short-term bid while trading above Friday’s low at 1.2760.”
Commerzbank’s Jones highlights the fact the pair is now above the 200-day moving average (MA) and, “allows for further strength to the 55-week MA at 1.2988.
However, like Wilkins she thinks that 1.3000 remains a major obstacle.
“Between it (the 55-day at 1.2988) and 1.3000 is its likely to run out of steam, however, at least temporarily.”
In our own analysis, we earmarked the R2 monthly pivot, situated at 1.2933, as a key obstacle restraining exchange rate upside, although this may now have arguably been pierced.
After that, the next level we targeted in our weekly forecasts was 1.3115, based on the 0.618% Fibonacci extension of the estimated height of the triangle pattern the pair has just formed after the October lows.
