Gains for pound sterling / US dollar exchange rate ahead? GBP/USD could be set for a bounce higher

By Will Peters

The past 24 hours have been tough for the GBP/USD exchange rate pairing, however underlying technical strength could see the pound sterling rebound against the dollar.

At 12:10 in London we see the pound to US dollar exchange rate trading 0.37 pct higher at 1.6444. The move higher comes as sentiment towards the UK currency improves after a particularly rough Monday session.  

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Today we have been told by the UK's ONS that inflation has fallen back to 2% meaning the Bank of England has finally hit their inflation target, something that has not been achieved since 2009.

The easing in price pressure on the UK populace will be welcomed however analysts had predicted that such an outturn could hurt sterling.

Subsequent price action showed the the GBP/USD did in fact take a dip following the data release, however we have seen a stabilisation through the later course of the morning session.

This leads us to believe that the uptrend is in place and that we are seeing some attractive entry levels for buyers of GBP/USD.

Outlook for the pound to dollar exchange rate

We present the latest views concerning the outlook for Cable.

"Support still holds on Fibo retracement floor at 1.6315. While the downside correction was stronger than we had anticipated, we remain bullish as MACD is stable above the zeroline .We will be watching for a re-test of 1.6600 as a break above would trigger an extension of buying to 1.6750." - Swissquote Research.

"With the trending and momentum pointing higher, there’s upside potential to test main resistance at 1.6622. A break above which would open 1.6747. Support is at 1.6383 ahead of 1.6317." - UBS.

ICN Financial say:

"The pair dropped sharply yesterday confirming the negativity showing on momentum indicators. But trading remained limited above 1.6360 levels as the pair failed to break the key support level of the ascending channel. Therefore, based on the technical analysis, we expect a bullish rebound affected by the ascending channel and take into consideration the appropriate Risk/Reward ratio; we suggest buying the pair today.

"Of note, breaking 1.6320 indicates failing the upside move and breaching the ascending channel, therefore extending the downside move."

Markets on Tuesday

Turning to investor sentiment we note markets remain under pressure.

European equities have opened lower tracking an overnight sell off in the US and Asia.

"The New Year hasn’t brought out the usual bout of bullishness so often seen when traders come back from the holiday with renewed vigour. Instead, the markets have stalled as no new catalysts have crystallized to keep the bulls going and the double edged sword of good economic data being bad if it leads to monetary tightening has kept other traders on the sidelines," says Jonathan Sudaria at Capital Spreads.

There are concerns we could start rolling back down the hill. The US indices made a decisive move out of their ranges yesterday and Asian indices have been already trending lower since late December so the question is whether the European indices will follow suit today?

The Dow Jones posted a sharp plunge yesterday, losing 172 points to 16,272 as investors are waking up from that disappointing employment report.

"We are in the early days of the earnings season which started last week with Alcoa. For now sentiment remains optimistic but companies will need to start reporting some good numbers if that’s to continue," says Sudaria.