Charts Point to More Gains


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– GBP/USD in short-term uptrend which remains intact

– Basing bullish reversal pattern also makes gains likely

– Sterling dominated by Brexit; Dollar by Fed meeting

The Pound-to-Dollar rate is set to beging trading around 1.3214 Sunday after falling just more than half a percent in previous week, although technical studies of the charts suggest the exchange rate is likely to rise over the coming days.

The GBP/USD pair fell at the start of last week after it the government requested from Brussels only a very short delay to the Brexit process. It recovered later, however, after the EU left the door open to a much longer extension of the Article 50 negotiating window, and potentially an indefinite one if Prime Minister Theresa May fails again to get the EU Withdrawal Agreement through parliament.

Pundits are still suggesting she will struggle to win enough votes for her deal to be approved next week so there is at least one fundamental reason for why the Pound could rise during the week ahead as a third failure of the Withdrawal Bill to clear parliament might see the market fixate on the odds of Brexit being abandoned by the government or prevented through a second referendum.

Speculation over the future of Prime Minister Theresa May and government in the UK will also be an important driver of the Pound in the week ahead. 

Above: Pound-to-Dollar rate shown at weekly intervals.

From a technical perspective, the charts are showing a bias towards more gains. Despite correcting back during most of March, the pair remains above its upward-sloping trendline from December’s low.

The pair has also formed a bullish hammer candlestick on the weekly chart. This is normally indicative of short-term gains. However, the pair remains below its 2019 high at 1.3300, which could now act as a ceiling of resistance.

The pair will have to break above the March 13 highs at 1.3381 to confirm a breakout and continuation higher toward the 1.3570, which is just below the 200-week moving-average and our next target.

Above: Pound-to-Dollar rate shown at weekly intervals.

A bullish sign for the exchange rate is the possible bottoming pattern which has formed on the weekly chart during  2018/19. The pattern looks like an inverse head and shoulders (H&S) which is bullish. Again, a decisive break above the 2018 highs would provide the necessary confirmation for a continuation higher.

The daily chart reinforces the bullish bias. It shows how the pair has corrected back down to a support zone composed of the trendline and the 50 and 200-day MAs at the 1.3000 level, and how it now looks poised to rebound higher, back up to the 2018 highs and then perhaps to the upside target at 1.3570.

Above: Pound-to-Dollar rate shown at daily intervals.

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The U.S. Dollar: What to Watch

The main release for the Dollar in the week ahead is the final reading of fourth-quarter GDP growth, which is due out on Thursday at 12:30 and is expected to be revised down from 2.6% to 2.5% on annualised basis.

This will be important because currency markets are focused on growth differentials between the U.S. and other major economies at the moment. Investors and analysts are watching closely for signs of an accelerated slowdown in the U.S. 

Consensus is firmly in favour of a weaker Dollar before year-end but in order for that to happen the U.S. economy will first need to slow meaningfully, or the likes of Europe and China will need to experience a notable economic rebound.

Personal income and spending data for February will also garner the market’s attention at 12:30 on Friday. Personal income is seen rising  0.3% in February, up from -0.1% in the previous month.

Personal spending in February, meanwhile, is forecast to also rise by 0.3%. That’s up from -0.5% previously. If those gains materialise they may provide support for the Dollar as they will evidence continued economic growth.

The housing market has been especially weak in the U.S. recently, which is something that has been raising alarm bells smong analysts as the market is a bellwether of the economy. 

New home sales are projected by economists to have risen 1.3% in February from a -6.9% decline in January when they are released at 14:00 on Friday.

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The Pound: What to Watch

The main event for the Pound in the week ahead will be the third parliamentary vote on the government’s EU Withdrawal Agreement, although an exact date is yet to be set. 

If Parliamentarians support the bill the UK will leave the EU on May 22 under the Withdrawal Agreement. But if MPs reject it then there the government has said it will offer a series of “indicative votes” to MPs, giving Parliament an opportunity to express its desired course.

At that point there will still be a risk that the UK leaves the EU without a deal and the key date in focus will be April 12, although this could change the moment the EU agrees to a further extension, if and when it does. 

If Parliament was succesful in foisting another referendum or a general on the electorate, another much longer extension is sure to be required, alongside participation in the EU parliamentary elections. 

However, and alternatively, if Parliament was to back the idea of a customs union with the EU or some other model of post-Brexit relationship it’s possible that no further extension would be required as the details of such a relationship would be thrashed out in the second stage of the negotiations.

But the government must notify the EU of the path it intends to take before April 12.

“Leaving on April 12 without a deal is now the default path, and while that will most probably be avoided at the end, the mere fact this massive risk still lurks in the background is likely enough to keep sterling under pressure for now,” says XM’s Hadjikyriacos.

On the data front, the next key release for the Pound is the final estimate for final quarter GDP growth, due out at 09:30 on Friday. Consensus is for growth to be confirmed at 0.2% for the final quarter and 1.4% for 2018 as a whole.

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