British Pound (GBP) Analysis and Chart
GBP/USD Forecast: Neutral
- GBP/USD has risen back to levels last seen in September
- 1.2500 support holds
- These gains have come in a thin FX market and bear-watching
The British Pound is back at highs not seen since early September against the United States Dollar. Indeed, it looks perhaps surprisingly comfortable above $.1.25 on its twin pillars of monetary support and, as rarely of late, economic data.
However, some caution could be warranted in the days ahead if only because a lack of first-tier domestic numbers will likely throw focus back onto the US Dollar.
But let’s start with the good news for the United Kingdom. The Purchasing Managers Index snapshot for November released on November 23 showed a surprise rise in activity for the dominant service sector. It returned to expansion after four months on the slide. Manufacturing for its part remained in contraction but to a lesser extent than expected by the economists.
These latest numbers add to a growing stock of evidence that, while United Kingdom Incorporated is not exactly charging, it’s certainly moving with a lot more vigor than many feared back in early- and mid-year. Consumer confidence has also improved and some major banks, including JP Morgan, have increased their UK growth forecasts.
The Pound has duly rallied. Of course, inflation remains a problem for the Bank of England but even here the UK is less of a problem-child outlier than it was. At last look, for October, core consumer prices were rising at 5.7% annually, but a deceleration trend has become clearer. The rise was 7.1% as recently as May, and most forecasters see further falls.
Still, UK rates like many others are likely to remain ‘higher for longer,’, which of course also provides Sterling with plenty of support.
There’s some bad news, of course. New business orders are still languishing, suggesting that overall demand remains patchy at best, productivity remains pretty hopeless compared with peer nations’ and the tax burden is close to peacetime highs.
Given the lack of important UK economic news in the coming week, it seems likely that some of these doubts might return to dog the Pound. Don’t forget that its most recent gains have come in a market severely thinned by the holiday absence of many US trading desks.
On that basis, it’s a neutral call this week.
Download our Free Guide on How to Trade GBP/USD
GBP/USD Technical Analysis
GBP/USD Daily Chart Created Using TradingView
The quite classic head and shoulders trading pattern visible on the daily chart between late June and August did indeed prove to be something of a top, presaging further falls. But those falls have been shallower than might have been expected, and the bulls are now trying to ease back into ‘right shoulder territory. Indeed, they are very close to edging GBP/USD back into the band between $1.2516 (August 28’s low) and 1.2836 (June 23’s high). They’ll need to consolidate in that region if they’re going to have another try at this year’s fifteen-month high, hit on July 13.
There’s near-term support at 1.24870. That’s the first Fibonacci retracement of the overall rise from September 2022 to that July peak. 1.24892 could also be modest, trendline support.
It’s probably worth noting that GPB/USD’s Relative Strength Index remains well below the 70.00 level which would suggest severe overbuying. However, the Pound’s position after a few better-populated trading sessions will probably be more instructive than the past few sessions’ action.
| Change in | Longs | Shorts | OI |
| Daily | -2% | -10% | -5% |
| Weekly | -19% | 33% | -3% |
--By David Cottle For DailyFX
