GBP/USD: more upside to come?

By Kira Iukhtenko, FBS analyst

British pound recovered from an 11-month low of $1.5950 on the past week, breaking above the trend line resistance. However, the $1.6200 mark still remains a hard nut to crack for the buyers. Cable strengthened on the back of the unexpectedly dovish Federal Reserve minutes. Market conviction in the Fed’s July rate hike has become slightly weaker, so the traders have once again remembered that the Bank of England is also standing on the edge of a policy tightening.

The Bank of England meeting on October 9 failed to move the market: as expected, monetary policy was left on hold, no statement was released. Markets will look for the meeting minutes release due in two weeks, on October 22. Details of the previous two meetings showed that 2 policymakers out of 9 have been clearly on the hawkish side. Any change in voting patterns will impact the price of the currency.

However, we are still rather far from the minutes’ release. On the coming week we will watch the UK inflation figures and the employment data. Price growth figures on Tuesday could set the trend: sellers will come back in case of a lower inflation. In August CPI fell to a 5-year high 0f 1.5%.

Our technical analysis points to a higher correction towards the $1.6300 mark. We expect the price movement to reverse from here: have a look at the bearish weekly Cloud. We conclude that the strategy of selling the cable on rallies remains adequate on the new week.

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