The GBP/USD pair went back and forth during the session on Thursday again, hugging the 1.62 level as the market seems to be attracted to it. This is resistance that we have to get over, and we essentially believe that the 1.63 is the end of it. Once that happens oh, we feel this market will undoubtedly head towards 1.65 level in the short term, although it could be a rather choppy affair going forward.
A lot of this will be predicated upon the idea that the Federal Reserve is in no position to taper off of quantitative easing, and that of course is dollar negative. At the same time, the British economy will be a beneficiary of the European recovery. After all, the British trade primarily with the Europeans, so as the European Union exits recession, there will be more demand out of the continent. This of course will favor the British economy assets and so many of its exports into that market.
On top of that, there is an obvious uptrend, although we do recognize the fact that we are at the top of the larger consolidation area. This is why we wait for daily close above the 1.63 handle, because that shows a continuation of the momentum to the upside, and it does break through several barriers.
The real question then becomes at 1.65 and whether or not we can get above it. We believe it can happen, but it probably isn’t going to happen anytime soon, because there are going to be some concerns about the global economy in general. With that being the case, of course the British pound will suffer and the US dollar may get a little bit of a bid from time to time, but as long as the Federal Reserve is stuck in neutral, any major moves towards the US dollar will more than likely be short-lived at best. With that being the case, the British pound should continue to enjoy relative strength against the US dollar, although it’s not going to be a straight shot higher.
Written by FX Empire