GBP/USD defends 1.30 as UK GDP matches forecasts, ahead of FOMC
Fawad Razaqzada July 26, 2017 12:28 PM
If the dollar were to head further lower, then the GBP/USD could be the next pair to rally given that all the other dollar crosses have had their fair share of the fun already, except sterling. Supporting this view, data from the UK hasn’t been bad this week, so it makes sense for the cable to go higher...
The market’s focus will be on the FOMC later on today. Investors will be fully anticipating the Fed to come across as more dovish than hawkish. But that view may already be priced in, so it will be interesting to see how the dollar will react. The US currency has bounded back a touch over the past couple of days, especially against her weaker rivals such as the Swiss franc and Japanese yen. But against the euro, it still remains downbeat despite yesterday’s mild sell-off in the EUR/USD pair. If the dollar were to head further lower, then the GBP/USD could be the next pair to rally given that all the other dollar crosses have had their fair share of the fun already, except sterling.
Supporting this view, data from the UK hasn’t been bad this week, so it makes sense for the cable to go higher, if the dollar were to weaken further. Indeed, growth figures released this morning by the ONS showed the UK economy expanded at a faster pace in the second quarter compared to the first quarter. GDP expanded 0.3% in Q2 versus to 0.2% in Q1. The pound didn’t show any positive reaction in the immediate aftermath of the data release as the number was bang in line with the expectations. Yet equally, the sellers had little desire to show up. Consequently, the GBP/USD bounced at around the key 1.30 handle and the EUR/GBP headed lower.
From a technical perspective, the cable has already made a series of higher highs and higher lows this year. This bullish structure of price has been objectively confirmed by rising moving averages: 21-, 50- and 200-period moving averages are all in the correct order and now point higher too. Broken resistance levels have turned into support. Now the cable must move away from the 1.30 psychological hurdle to encourage fresh buying. Supporting the bullish case is evidence that the sellers are continually getting trapped. For example, yesterday’s doji candle would normally be a bearish sign. However, once the low of yesterday’s range broke, there was very little follow-through.
All that being said, the day has just started and the dollar could very easily make a comeback in the event the Fed delivers a hawkish surprise later on today, or if US GDP comes in surprisingly strong on Friday. So things could turn bearish for the cable very quickly. However, at the moment, the path of least resistance is still to the upside. A deceive break above the recent swing high of 1.3125 would be ideal for the bulls.
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