The GBP/USD pair has traded in a tight range over the last three weeks and has seen a rebound following a major sell-off. The figure below shows the market’s reaction to the UK Prime Minister Theresa May’s speech earlier this week, which outlined her plans for Brexit negotiations.
This post will go through what happened and how you should trade going forward based on this information.
Countries are typically measured by their currency against another country’s currency. When one country’s currency becomes more valuable than another, it is said that it is “strengthening” or “appreciating”. In the case of the UK and the GBP, it was as a result of Brexit that the exchange rate strengthened to a level that was much higher than in normal times.
When one country “weakens”, it is said that it is “weakening” or “depreciating”. In the case of the UK and the GBP, it was because of uncertainty over Brexit that investors perceived it to be weakening. However, when this began to change with developments in the Brexit negotiations, investors started to perceive a central bank’s efforts at intervening as strengthening (the pound was then trading at a higher level).
GBP/USD Forecast:
It appears that the pound is on the verge of a rebound, which has been strengthened by May’s speech. Now that the Brexit negotiations are set in motion, the uncertainty over the currency should begin to be reduced. This will positively impact GBP/USD price action and we expect it to trade higher against the USD.
From a technical standpoint, GBP/USD is expected to rally past 1.2400 and could reach as high as 1.2600 in due course if there is sustained buying interest in Sterling. We would not recommend shorting GBP/USD as there seems to be little worry over Brexit negotiations at this point which suggests higher prices to come for Sterling against the Dollar.
GBP/USD Analysis:
It appears that the pound has been trading in a tight range for a few weeks and has seen an upward rebound following a major sell-off earlier this week. This is strong buying support for traders looking to initiate positions as we expect the sterling to rally against the USD in due course.
The GBP/USD pair is likely to begin to rally in the immediate future above 1.2000 and could reach as high as 1.2400. A break past this level would be bullish.
Our Buy signal is above 1.2000 and below 1.2700, suggesting a move towards 1.2400 within the next three months based on technicals and a break of the signal line (1.2500) showing, a potential move toward 1.2600 within three months, which may take place by end of 2018 or early 2019.
Is GBP/USD Going Up?
The GBP/USD is likely to trade higher against the USD and should continue to rally against the dollar in 2018. After all, the pound has been set for a rebound against the US dollar and those traders who have been waiting for it should soon get their reward.
Looking ahead, we are likely to see a rise in the GBP/USD and see it reach as high as 1.2800 by end of the year or early 2019. The price action is likely to be driven by an improved Brexit outlook as well as favorable economic reports, which will boost investor confidence in the Sterling.
Conclusion:
The GBP/USD pair is now likely to begin to rally in the immediate future above 1.2000 and could reach as high as 1.2400. Although the pound has seen a return to pre-Brexit levels, we expect it to continue rising against the US dollar through 2018 and into 2019. Our view is supported by a number of fundamentals that favor a rebound in GBP/USD prices action such as lower inflation, increased economic activity and an improving Brexit outlook. These factors should entice traders into buying the Sterling as it continues its path towards parity against the Dollar.
