Will GBPUSD Break 1.60?

Will GBPUSD Break 1.60?

Will GBP Break 1.60?

Fundamentals

Dovish Bank of England minutes, a surprise decline in retail sales and a larger than anticipated drop in industrial orders should have taken GBP/USD below 1.60 and while the currency pair made a brief foray below this level today to 1.5995, it rebounded to end the day above this key level. Given the softness of retail sales and the deterioration in trade activity, Friday’s third quarter GDP numbers are not expected to be kind to sterling. Nonetheless the currency pair’s resilience should not be underestimated because 1.60 could still hold (after a brief break) if growth falls short of expectations. Not only is the GDP report backwards looking but economists expect a slowdown in growth so a softer number would not be a major shock. At the same time, with 2 members voting in favor of an earlier rate rise, the Bank of England will still be one of the first countries to raise interest rates. We also believe that sterling is receiving some support from euro outflows ahead of the Eurozone’s bank stress test results, which are scheduled for release on Sunday.

Technicals

Taking a look at the weekly chart of GBP/USD, 1.60 is not only a psychologically significant level but also the 50% Fibonacci retracement of the 2013 to 2014 rally. Once this level is broken, the next support is the 2014 low of 1.5875. If it holds, meaning GBP/USD does not close below this level then it is likely to retest 1.62.

Chart Of The Day

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