GBP/USD tops 1.30 – a sell opportunity?

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The pound continues its recovery and has topped 1.30, reaching 1.3035. This is over 160 pips on the day. Cable stalled under the round number but eventually made the break higher.

The two forces driving the pair higher could eventually push it lower. Here is why.

  1. High UK inflation: The report showed a beat in headline CPI at 0.6% and a leap in producer prices worth 3.3%. The rise in PPI will eventually show up in CPI as producers push the higher costs to the consumers. This is a result of the lower exchange rate: import prices saw a significant bump to the upside. However, with lower growth prospects and higher uncertainty, not all these associated costs will make it to the end-point. Companies may decide to absorb some of the cost. More importantly, the BOE clearly noted that the fall of the exchange rate would cause slightly higher inflation. Carney and his colleagues see this rise as temporary or transitory and will see through it. So, the bump, which was not entirely unexpected, will not deter them from cutting rates again in November. The bigger data point is retail sales, due on Thursday.
  2. US dollar weakness: The greenback continues suffering from lower expectations for a rate hike. The big disappointment from the retail sales report was not alleviated by the housing and inflation figures which were OK and not healthy. Nevertheless, the US dollar remains the cleanest shirt in the dirty pile. While a recession is on the cards in the UK, there is no similar conceivable case for this in the US. The dollar sees the ebb and flow, and this could reverse, as it did late on Friday.

All in all, the case for a surging pound against the dollar could be temporary.

In any case, resistance awaits at 1.3060 followed by 1.3150. Support below 1.30 is at 1.2850.

More: Textbook-like GBP weakness – Morgan Stanley

GBPUSD August 16 2016 surging higher

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

  • mikethemike

    Yohay, I’d love to believe the technicals, but cable seems to not follow the fundamentals any more.

    Just look at the 1.30 break, it simply happened at London closing time, based on no news. With this trends, what’s stopping them to take it to 1.35?

    • Well, the move higher is consistent with USD weakness and of course this could extend and send GBPUSD to higher levels. However, I think that there is a better chance the mood will change back to the downside…

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