Pound-to-Dollar Forecast for this Week: Potential for a Move Back Above 1.30

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- GBP/USD could be reversing trend after 5-day run higher from 1.26 lows

- Momentum is bullish with the RSI momentum indicator back at August 01 levels

- Trendline is potential major obstacle to recovery

GBP/USD may well have reversed its downtrend.

It had an uninterrupted run of five up-days from the 15 August lows before meeting the trendline in the low 1.29s and finally selling-off last Thursday; this probably just represents some profit-taking, however, rather than a resumption of the downtrend.

As things stand the exchange rate looks likely to eventually break above the trendline - on a second attempt, perhaps - and then move up to the next target at the 50-day MA at 1.3050.

A move above the previous recovery-rally highs at 1.2936 would provide confirmation of a break above the trendline, a move higher to the next target, and more confirmation of a change of trend.

When price breaks above a trendline it is generally expected to move the same distance (thin green line 'y') as the length of the move preceding the trendline break (thick green line 'x'). This actually suggests a target in excess of the MA, closer to 1.3100. However, moving averages are such formidable obstacles they always take priority as targets.

If price action reaches the 50-day MA there is likely to be another pause for profit-taking before bulls and bears slug it out once again to determine the next direction.

Sometimes major MAs are the site of reversals of the trend so its also possible there could be a major correction back down from there too.

Momentum is bullish so far, with the RSI momentum indicator at the same level that it was at on the first of August, when GBP/USD closed at 1.3135; and this suggests further support for the bullish case.

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The US Dollar: What to Watch

On the data front, meanwhile, a report on U.S. personal income and spending, which includes the personal consumption expenditure (PCE) metric - the Fed's preferred inflation gauge - will be one of the data releases which most captures the market's attention in the week ahead.

This is especially true after Federal Reserve Chairman Powell's more dovish comments at Jackson Hole - dovish meaning leaning to lower interest rates rather than higher. Powell  said the inflation rate did not look likely to rise much beyond the Fed's 2.0% target, which suggested interest rates might not move substantially higher than the level currently expected by the market.

PCE for the month of July is forecast to show a 0.2% rise compared to the previous month  when it is released on Thursday at 13.30 B.S.T.

Compared to a year ago, PCE is forecast to rise 2.0% compared to 1.9%.

Other related data released at the same time includes personal income and personal spending, forecast to rise by 0.3% and 0.4%, respectively.

Wednesday sees the release of the second estimate for US GDP in the second quarter and this may be one to watch because the preliminary estimate was so high at 4.1%.

The market will want to see confirmation this was not an exaggeration from the second estimate, currently forecast to come out at 4.0%.

Given how significant the US Consumer is in any analysis of the US economy or the Dollar,  because most growth is generated by private consumption, the Conference Board Consumer Confidence data release in August, is likely to be a closely watched data release in the week ahead. The Conference Board's index is expected to drop to 126.5 from 127.4, when it is announced at 15.00 on Tuesday, August 28.

Another major release is Pending Home Sales in July, which is forecast to fall to 0.4% from 0.9% when it is released on Wednesday at 15.00 GMT.

The Pound - What to Watch

Brexit remains the overarching factor driving Sterling values at present with negotiations entering a key phase with markets becoming increasingly weary that the two sides remain too far apart to reach a deal.

After their meeting on Tuesday, August 21 UK Brexit Secretary Dominic Raab and EU chief negotiator Michel Barnier announced that with some key autumn deadlines fast approaching, negotiations will now be ongoing. Raab and Barnier will probably meet again on Tuesday, August 28, so we will be looking for any communications.

Latest developments see Prime Minister Theresa May preparing a "cabinet crisis summit" to prepare for a 'no deal' Brexit, amid fears that a cabinet row between 'Remainers' and 'Brexiteers' will stop Britain going it alone, and undermine her negotiating position with Brussels.

The Prime Minister's office has reportedly ordered cabinet ministers to clear their diaries for September 13 to work on a plan to pump fresh cash into critical areas not yet covered by disaster plans.

Only when markets are convinced that a 'no deal' Brexit will be avoided to we believe the conditions for a sustainable recovery in the Pound will emerge.

On the calendar, there are no stand-out events for the Pound in the week ahead so we comment on them chronologically.

The week for Sterling starts with the continued testimony of Bank of England (BOE) officials before the the Parliamentary treasury select committee on Tuesday, August 28. Any new information on where interest rates in the UK are headed over coming months could well move Sterling.

Few analysts realistically expect the BOE to raise interest rates until the outcome of Brexit is clarified and therefore the next possible move will likely come later in 2019, but there is always an outside chance officials may hint differently on Tuesday.

If it seems more likely interest rates will rise then the Pound will also rise because higher interest rates attract greater inflows of foreign capital, drawn by the promise of higher returns.

The next major release for the Pound is house price data from Nationwide, on Wednesday, at 07.00 B.S.T, which is forecast to shown a 0.1% rise in August from July and 2.6% compared to a year ago. This is unlikely to move Sterling unless it comes out widely different from expectations.

Thursday sees lending data out at 9.30, including BOE Consumer Credit in July, Net Lending to Individuals, Mortgage Lending and Mortgage Approvals also all for July. These may be significant as the gauge consumer's stomach for credit and therefore their ability to spend extra cash. Higher spending generally aids growth and is positive for Sterling.

Friday sees the release of Gfk Consumer Credit data for August, which is expected to come out negative at -10, when it is released at 12.01. This is important in a similar was as the BOE data above.

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