GBP: Oversold or Still in a Downtrend?
Sterling Talking Points:
- GBP is trying to push higher across a range of currencies, with limited success.
- Economic calendar is no help with little hard data around.
The DailyFX Q2 GBP Forecast is available to download.
Fundamental Forecast for GBP: Neutral
We remain neutral on Sterling but considered upgrading GBP to the buy list recently with the UK currency floundering at multi-month lows. Interest rate projections of one 0.25% hike in 2018 is currently consistent with the current low growth, high employment and inflation marginally above target backdrop. Brexit in the meantime is not influencing Sterling – although this may change quickly – while the ruling Conservative party seem to be split on the future of the UK.
Next week the calendar is of little help with only a few low and medium importance releases on the slate with GfK business confidence on Wednesday and the Markit manufacturing PMI on Friday the pick of the bunch. This lack of market moving data may actually cause some market volatility with other normally less important news potentially having an outsized effect on the market.
GBPUSD continues to probe the 1.3300 level with both a stronger USD and a weak GBP playing their role. The USD is likely to remain strong over the next few months as US interest rates are hiked between two and three times, while Sterling will need a few stronger data points to help it move higher. Sterling bulls therefore should look at other Sterling pairs, including GBPCAD, GBPAUS and even EURGBP for potential Sterling appreciation.
A look at the GBPUSD chart shows current support at 1.3300 holding although it has not been thoroughly tested yet. The pattern of lower highs and lower lows is the hallmark of a bear market, as is the pair trading below all three moving averages. The one positive for anyone bullish of the pair is that the RSI indicator remains in oversold territory, which may give GBPUSD a short-term uplift.
GBPUSD Price Chart Daily Timeframe (September 2017 – May 25, 2018)
--- Written by Nick Cawley, Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.