Natixis: Outlook for GBP/USD “Extremely Favourable”
Having put in a commanding performance against the US Dollar in April those with an eye on the foreign exchange market place will be questioning if the Pound can do the same in May.
While April does tend to favour the Pound based on historical precedent the same cannot be said for May which tends to favour the US Dollar.
However, the recent uptrend in Sterling would suggest there is some decent positive momentum behind the currency that will play into its favour.
Specifically, the big question is whether the magical 1.30 level in GBP/USD can be breached.
This big-round number will be a psychological target that many with impending currency payments would like to achieve.
The good news for this segment of the market is that Micaella Feldstein, a technical analyst with Natixis in Paris, tells us the signs point to a break of 1.30 as being achievable:
“The outlook is extremely favourable, as an ascending channel remains in evidence in the daily chart and an upward bubble is developing in the weekly chart,” says Feldstein in a client briefing dated April 2.
“Under these conditions, any pullbacks towards the support around 1.2840-1.2860 (9-day moving average) should be seen as purely by way of a correction,” says the analyst.
Feldstein says we should watch out rather for a test of the resistance around 1.30-1.3010 (upper band of daily Bollinger).
“A breakout above these last levels would instil strong upward momentum towards 1.3130 (Fibonacci projection) before 1.3250-1.3270 (Fibonacci projections) and 1.3370-1.3390 (ascending resistance trendline),” she says.
From a strategic perspective, traders could take advantage of any pullbacks towards 1.2840-1.2860 to buy the GBP/USD, with a first target at 1.3010. A stop-loss order is raised to 1.2720.
Dollar Tipped to Struggle
It has been a tough year for the Dollar with the Bloomberg dollar index down by around 4%.
The Dollar index is a widely-watched measure of overall Dollar performance as it takes into account the Dollar’s performance against a basket of its most-heavily traded counterparts such as USD/JPY, EUR/USD and GBP/USD.
“We continue to see broad-based USD weakness from a multi-month perspective as we believe that the market has not finished re-assessing its initial (over)optimistic interpretation of Trump’s policies and their impact on the Dollar,” say UniCredit Bank in a recent assessment of the Dollar.
UniCredit believe the USD’s still overvalued and it is this observation that remains the bedrock of their medium-term bearish view.
But, beware the Dollar’s performance in May.
“In the next few weeks, however, there is a high probability that differentiation will emerge across G10 FX, with several high-beta players potentially giving back (temporarily) some of their yearly gains.
May has historically been a seasonally strong month for the USD: the dollar has risen in May in nine of the last ten years, with an average appreciation of 1.5%.
“Our empirical analysis suggests that USD gains were strongest and most statistically significant against the AUD, NOK and SEK; the Euro also declined, on average, but we suspect this time pressure (if any) will be limited due to the rejuvenated economic and political outlook in the euro area,” say UniCredit.
We suspect this could also allow GBP a shot at overcoming any seasonal disadvantages.