British Pound (GBP) Forecast: UK GDP Paints Supportive Picture, GBP Bid
POUND STERLING TALKING POINTS
- Strong UK GDP supports GBP.
- Political uncertainty takes a back seat for now.
- Bullish divergence on daily cable chart.
GBP/USD FUNDAMENTAL BACKDROP
The pound shook off yesterday’s push lower after better than expected GDP data was released this morning (see economic calendar below). Industrial and manufacturing production for May added to the positive sentiments around the UK economy temporarily leaving the political shenanigans aside. Currently, money markets are pricing in a 66% chance of a 50bps rate hike in August by the Bank of England (BoE) and with the recent GDP data looks to be cementing its place come August. The dovish re-pricing has hurt the pound of recent but we could be seeing a potential turnaround as the dollar hits extreme levels.
Focus now shifts to U.S. inflation later today which may trigger a pullback by GBP bulls should actual data fall short of expectations.
GBP/USD ECONOMIC CALENDAR
Source: DailyFX Economic Calendar
GBP/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Daily GBP/USD price action shows yesterdays lower long wick setting up today’s comeback in textbook fashion. Bears attempted to test the 1.1800 psychological support zone to no avail keeping in line with the bullish divergence trend we have seen of recent. The RSI continues its higher highs while the corresponding price action moves lower. This may be the turning point to a short-term pound rally but much depends on the U.S. inflation print later today.
Key resistance levels:
- 1.2080/20-day EMA (purple)
Key support levels:
BULLISH IG CLIENT SENTIMENT
IG Client Sentiment Data (IGCS) shows retail traders are currently LONG on GBP/USD, with 77% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however due to recent changes in long and short positions we settle on a short-term upside bias.
Contact and follow Warren on Twitter: @WVenketas
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.