GBP/USD – Headed for 1.51

GBP/USD – Headed for 1.51

GBP/USD – Headed for 1.51

GBP/USD has been surprising resilient in the face of U.S. dollar strength. This outperformance can be attributed almost entirely to EUR/GBP selling. The exodus out of euros has not only benefitted the greenback but also the British pound because the Federal Reserve and the Bank of England are the only 2 central banks thinking about raising interest rates. However the BoE is much further away from acting than the Fed. Their Quarterly Inflation Report was extremely dovish even as U.K. data continues to improve. This week we learned that consumer prices rose 0.1% in the month of October and tomorrow we expect a cut back in consumer spending after a strong September. At the same time, December is still on the table for Fed liftoff. We have been waiting patiently to see if the Fed’s views have changed since the Paris attacks and based on the speeches from 5 Fed Presidents (3 of whom are FOMC voters), there’s still a lot of eagerness within the ranks to raise interest rates next month. It seems that policymakers are not worried that the slowdown in Europe will spill over to the U.S. in a big way but a better way to look at this is that the Fed still feels the process of unwinding emergency stimulus needs to begin. The FOMC minutes were also hawkish with the central bank inserting language to convey that December liftoff may be appropriate.

Technically there’s a significant amount of resistance above current levels. The 50-day SMA and 23.6% Fibonnaci retracement of the 2007 to 2009 decline converge at 1.5315 while the 200-day SMA sits at 1.5340. This will be a very difficult level to break.

Chart Of The Day

Leave a Comment

Your email address will not be published. Required fields are marked *