British Pound: USD/GBP (GBP=X) tipped to rise as uptrend extends
The Pound-to-Dollar rate is to begin trading around 1.3285 Sunday after rising more than 2.0% in the previous week, although the exchange rate still has further to climb over the coming days, according to technical studies of charts.
The pair rose after the UK Parliament voted to take ‘no-deal off the table’ during a tense week during which lawmakers rejected Prime Minister Theresa May’s deal for a second time. MPs also voted for an extension to Article 50. The week’s events pushed the Pound to new 2019 highs against the Dollar.
From a technical perspective, charts are showing a bias towards more gains. Despite a deep correction at the beginning of March, the pair remained above the trendline from its December lows. It’s since formed a bullish engulfing candlestick pattern on the weekly chart that improves the odds of continued gains.
What to Watch
The main fundamental driver for the Pound in the week ahead is probably developments in the Brexit process, with the Bank of England (BOE) meeting on Thursday also likely to cause volatility.
It is highly likely that the government will try, for the third time, to get its Brexit deal approved by Parliament, or failing that, that the EU will require a lengthy delay of article 50.
The latest reports from Brussels are suggesting the EU may try to make a delay conditional on either the UK having a second referendum, a general election or a very firm plan.
It is suggested this may focus minds, especially amongst Brexiteers who could fear a hijacking of Brexit if there is a delay. This will put pressure on them to accept the government’s negotiated deal.
The two most likely scenarios, therefore, are that Theresa May’s deal finally gets approved on a third attempt, or that Brexit is delayed on the condition of a referendum or general election being held.
Both would be very positive for the Pound, which compliments the overall bullish technical outlook.
The BOE meeting on Thursday, at 12.00 GMT, could also impact on Sterling. There is a risk the BOE may change its statement to reflect the recent slowdown in the economy. If so the Pound is likely to suffer.
Up until now, it had been assumed Brexit risks were the only thing stopping the BOE from raising interest rates, but the slowing economy may be providing them with other reasons not to.
“The economy has no doubt slowed but the Bank seems unwilling to shift to a more dovish stance, reasoning that it should just be patient for now as an ‘orderly’ Brexit outcome can dispel much of the uncertainty by itself and hence, kickstart investment and growth. Overall, the BoE is unlikely to deviate much from this stance, but if there is any change, it’ll probably be towards a more cautious bias,” says Raffi Boyadjian, an economist at XM.com.
From a purely hard data perspective, the main releases are employment data out on Tuesday, inflation data out on Wednesday and retail sales on Thursday.
Labour market data is expected to continue showing signs of strength, when released on Tuesday at 9.30. The unemployment claimant count is expected to have risen by only 2.7k in February – a relatively low count – the unemployment rate is forecast to be stuck at a historic low of 4.0% in January, and overall payroll count to have risen by 120k in December, according to consensus estimates.
More important for Sterling, perhaps, is average earnings in January, since this has more influence over Bank of England (BOE) policy.
If average earnings rise more than the 3.4% in January (3.2% including bonuses) that is forecast, inflation will probably rise and so will interest rates – with expectations increasing that the BOE will raise them, and this will drive Sterling higher. Higher interest rates are positive for the Pound because they attract and keep greater inflows of foreign capital.
Inflation is out on Wednesday and is another key metric for the Pound. As explained above inflation influences BOE policy which impacts on the currency. In January inflation came out surprisingly lower after falling -0.8% compared to December. If inflation is also shown to be negative in February it could really drive down the Pound. Current expectations, however, are for a 0.2% rise.
Thursday sees another major data release, in the form of retail sales in February, out at 9.30. This is forecast to show a -0.3% fall from 1.0% previously. A deeper-than-expected decline, however, could trigger more weakness for Sterling.
Overall, the bias in prices is: Upwards.
By the way, prices are vulnerable to a correction towards 1.30.
The projected upper bound is: 1.35.
The projected lower bound is: 1.30.
The projected closing price is: 1.33.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 6 black candles for a net of 3 black candles. During the past 50 bars, there have been 22 white candles and 26 black candles for a net of 4 black candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 70.4472. This is not an overbought or oversold reading. The last signal was a buy 5 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 57.07. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 12 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 62. This is not a topping or bottoming area. The last signal was a sell 11 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 1 period(s) ago.
Rex Takasugi – TD Profile
FOREX GBP= closed down -0.004 at 1.325. Volume was 65% below average (consolidating) and Bollinger Bands were 10% narrower than normal.
Open High Low Close Volume___
1.329 1.330 1.323 1.325 62,991
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 1.32 1.30 1.30
Volatility: 16 11 11
Volume: 176,470 172,305 178,745
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX GBP= is currently 2.1% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of GBP= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on GBP= and have had this outlook for the last 3 periods.
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