How Much More Upside in GBP/USD?

GBP/USD, BRITISH POUND – Outlook:

• GBP/USD breaks above key resistance forward of BOE price determination.
• Medium-term GBP/USD stays constructive.
• What are the signposts to observe?

The British pound’s break above key resistance towards the US greenback final week is one other signal that GBP/USD’s medium-term fortunes may very well be altering.

GBP/USD rose to a one-year excessive forward of the Bank of England rate of interest determination on Thursday. The better-than-expected US April jobs information have been overshadowed by downward revisions to the March jobs numbers, conserving intact the market pricing for 75 foundation factors of Fed price cuts by the year-end.

The BOE is broadly anticipated to boost rates of interest by 25 bps to 4.5% as UK value pressures stay stubbornly excessive — headline inflation rose quicker than anticipated at 10.1% on-year in March, not too removed from the four-decade excessive of 11.1% hit in October. The market is pricing the terminal price nearer to five% and can be searching for a affirmation of the identical. A hawkish hike may drive GBP larger.

GBP/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView

Note: In the above colour-coded chart, Blue candles symbolize a Bullish section. Red candles symbolize a Bearish section. Grey candles function Consolidation phases (inside a Bullish or a Bearish section), however typically they have a tendency to kind on the finish of a pattern. Note: Candle colours should not predictive – they merely state what the present pattern is. Indeed, the candle coloration can change in the subsequent bar. False patterns can happen across the 200-period transferring common, round a assist/resistance, and/or in a sideways/uneven market. The creator doesn’t assure the accuracy of the knowledge. Past efficiency just isn’t indicative of future efficiency. Users of the knowledge achieve this at their very own danger.

Moreover, UK macro information have exceeded expectations in latest weeks – the UK Economic Surprise Index is round a 2-year excessive, in contrast with its US counterpart, which has been declining because the finish of March. In this regard, US CPI information due Wednesday (core CPI anticipated to melt to five.5% on-year in April from 5.6% in March) might be essential after the US Federal Reserve hiked rates of interest final week and indicated it could pause there.With no BOE price cuts anticipated this 12 months by markets, the relative financial coverage outlook is GBP supportive for now.

GBP/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView

On technical charts, GBP/USD’s decisive break above a horizontal trendline from the tip of 2022 at about 1.2450 has triggered a breakout from the sideway channel (the decrease fringe of the channel is a horizontal trendline round 1.1840), implying a possible rise towards 1.3000-1.3100 based mostly on the width of the sample.

Last week’s rise confirms the higher-tops-higher-bottom sequence since late 2022. For extra dialogue, see “British Pound Price Setup: GBP/USD, EUR/GBP, GBP/JPY”,printed March 29. Importantly it may very well be unfolding into one thing greater than only a corrective rebound, that’s, it opens the door for a reversal of GBP/USD’s medium-term downtrend (first highlighted in October – see “GBP/USD Technical Outlook: Forming an Interim Base?” printed October 3.

GBP/USD Weekly Chart

Chart Created Using TradingView

GBP/USD’s pattern has been bullish in latest months, because the colour-coded candlestick charts based mostly on pattern/momentum indicators present. This is additional strengthened by the rise above the higher fringe of the Ichimoku channel on the weekly charts. GBP/USD is now testing a stiff barrier on the 89-week transferring common – the final time it was decisively above the typical was in 2021. Subsequent resistance is on the 200-week transferring common (now at about 1.2870).

On the draw back, the mid-April low of 1.2350 may supply fairly a powerful cushion in the occasion of a pullback. A break under 1.2350 can be wanted for the upward stress to fade in the brief time period.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and comply with Jaradi on Twitter: @JaradiManish