GBP/USD: how long will the rally last?
Kira Iukhtenko, FX BAZOOKA analyst
As we expected yesterday, the cable met buyers at the lower boundary of the bearish channel at $1.6230 (this is also the 38.2% Fibo retracement from the $1.5850/6450 rally). On Wednesday GBP/USD jumped to $1.6365 (61.8% Fibo of the recent decline), inspired by the upbeat UK employment figures. Jobless claims in Great Britain contracted by 36.7K in November (forecast: -35.2K; prior revised up to -42.8K). Unemployment rate fell from 7.6% to 7.4%, coming closer to the BoE 7.0% target. BoE meeting minutes brought nothing new except for the words that “further substantial appreciation” of GBP may hurt the economic recovery. However, the market didn’t pay too much attention on that.
The question now arises of whether the GBP rally will survive the Fed’s meeting or not. If the Fed tapers and pushes the greenback up, cable can depreciate. However, the market needs too close below $1.6230/00 area to confirm the top at $1.6465. If the Fed disappoints with QE reduction, we can see a rise towards our initial target of $1.6600 in the medium term.
Chart. H4 GBP/USD