Analysis by Experts

GBP/USD Forecast: Next major hurdle is inverse head and shoulder neckline

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GBP/USD rose to near 1.43 levels after US Fed’s Williams talked about negative rates. Gains were extended further to near 1.44 handle after Fed’s Yellen came out dovish.

Brexit vote is gathering pace

Sterling also found support from an Ipsos MORI poll, which showed 49% would vote to remain in the EU at the referendum and 41% of respondents would vote to leave. However, there has been a reduction in the “In” campaigns lead by 5%, which clearly indicates the public opinion is shifting in favor of an exit from EU bloc.

This could see Cable underperform EUR/USD pair amid broad based USD selling, thus making EUR/GBP attractive for bulls.

Furthermore, Bank of England fired warning shot yesterday by stating that economic uncertainty surrounding the referendum could increase the cost of borrowing and further weaken sterling. The Bank’s Financial Policy Committee showed the UK economy would be “more vulnerable and less resilient if we vote to leave the EU” which he said could lead to higher mortgage rates for families and higher interest rates for businesses.

Thus, upticks are to be treated with caution as tide may suddenly turn against the British Pound. Nevertheless, odds of the pair moving towards inverse head and shoulder neckline hurdle of 1.4475 are high as long as the support around 1.4350 is intact.

Technicals – Inverse head and shoulder on daily chart

  • Sterling’s break above 50-DMA yesterday followed by a daily closing above 1.4351 (61.8% of 1.4668-1.3835) – 1.4354 (23.6% of 1.3835-1.4514) coupled with RSI now trading above 50.00 indicates the currency pair is likely to extend gains to inverse head and shoulder neckline level of 1.4475.
  • A daily close above 1.4475 would open doors for inverse head and shoulder breakout target of 1.5115, although such a sharp rally appears unlikely given the rising Brexit fears.
  • On the downside, a break below 1.4351-1.4354 could see prices drift lower 1.4293 (10-DMA levels). A break here will see spot aim at 1.4252 (50% of 1.4669-1.3835).
Written by : Omkar Godbole

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