Will GBP/USD Hit 1.60?

Will GBP/USD Hit 1.60?

Will GBP/USD Hit 1.60?

In the course of 8 trading days, GBP/USD has moved from a low of 1.52 to a high of 1.5756. There was very little retracement during this staggeringly strong 550 pip rally. This has now become the longest stretch of gains for GBP/USD since April 2012. While the currency pair’s move screams of exhaustion, today’s rally was supported by sound fundamentals. Previously we had seen mostly mixed U.K. data but between the sharp rise in average weekly earnings and the Bank of England’s admission that wages may be rising at a faster pace than they anticipated, policymakers are warming to the idea of tightening. They also believe that inflation could accelerate “notably” later this year. Two members of the monetary policy committee (Weale and McCafferty) said their decision to keep rates unchanged was finely balanced. While we continue to believe that the first rate hike from the BoE will be in 2016, today’s report widens the policy divergence between the U.K. and countries such as Australia, New Zealand and even the Eurozone. Retail sales are scheduled for release tomorrow and economists are looking for a decline. If they are right, it would be the perfect catalyst for a move back down to 1.55. However given the jump in earnings and rise in the BRC retail sales report, the odds favor an upside surprise. If the data is good, it should be clear sailing to 1.60.

Technically, GBP/USD has already broken above the 2015 high of 1.5814. It has also cleared the 38.2% Fibonacci retracement of the 2009 to 2014 rally at 1.5800. There is no resistance now until 1.60 and we believe that the currency pair is on its way to test this level. However should GBP/USD sink below 1.5750, we could see a deeper correction down to 1.55.

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