Talking Points:

- The British Pound is continuing its Q3 rally as a strong PMI report plus some hawkish comments from BoE Governor, Mark Carney are helping to bring the bid to the British currency. Mr. Carney warned of rate hikes by the end of this year, and markets have started to gear-up for a possible rate hike in August or November at one of the bank’s two remaining ‘Super Thursday’ rate decisions.

- This move of GBP/USD strength has also been coupled with a deeper drop in the US Dollar, and DXY is in the process of testing a key area of support that runs from 94.20-94.30. This could constrain further strength in GBP/USD should that support hold, and also of issue to near-term bullish stances is the fact that IG Client Sentiment remains elevated on the pair, with approximately 2.3 retail traders long for every one that is short. Given the contrarian nature typical of retail traders, this would highlight the potential for further losses in the near-term.

- Quarterly Forecasts have just been updated, and the Q3 forecast for GBP/USD is available from the DailyFX Trading Guides Page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Want to see how retail traders are currently trading GBP/USD? Click here for GBP/USD Sentiment.

Cable’s Q3 Retracement Continues

So far Q3 has brought retracements in a number of previously strong trends, and GBP/USD illustrates this well. After a quick support test shortly after the open of July trade, prices have rallied on both Tuesday and Wednesday, and thus far on Thursday we’re seeing more of the same. The drive for this morning appears to be emanating from some comments coming from BoE Governor, Mark Carney, in which he warned that rate hikes may be coming later in the year, and this followed the release of a fairly strong PMI report that was released earlier this morning.

This net of the past few day’s strength has been a bullish break above a bearish trend-line that showed up in late-June. A bit-higher on the charts, we have another bearish trend-line that has yet to come back into play, and that currently projects to the area around 1.3315-1.3320 on the chart.

GBP/USD Four-Hour Chart: Bullish Break Above Bearish Trend-Line

gbp/usd gbpusd price chart four hour

Chart prepared by James Stanley

On a longer-term basis, the big question as we trade into the second half of the year is which trend will continue to show in the British Pound. We came into the year and further, Q2, with a full head of steam as markets were pricing-in additional rate hikes from the Bank of England. That theme was shattered through the month of April after a release of lagging inflation figures followed by disappointing GDP, setting the stage for a dovish Bank of England at their May rate decision. Collectively, this amounted to a bearish reversal of greater than 1300 pips from the middle of April to the lows of June, and as we came into Q3, prices have continued to try to grasp support around the 38.2% retracement of the ‘Brexit move’ in the pair.

GBP/USD Weekly Price Chart: Continued Hold of 38.2% Fibonacci Support

gbpusd gbp/usd price chart four hour

Chart prepared by James Stanley

At this point, the longer-term trend does remain bearish, however we may be nearing a point of reversal that could re-open the door for longs. The deeper trend-line that we looked at above that has yet to be broken could be helpful for evaluating this theme, as this projection is confluent with the prior swing high in the pair around 1.3320. A test above this level further highlights bulls taking control of near-term price action, and this higher-high could re-open the door for bullish strategies in the pair.

GBP/USD Four-Hour Chart: Bullish Break to Three-Week Highs to Re-Open Door for Longs

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX