GBP/USD Forecast: 1.5638 or 1.5876?

The GBP/USD pair has witnessed a much needed correction this week, after having rallied for nine straight sessions. The pair topped out at 1.5928, before falling to a low of 1.5666 on Wednesday.

GBP resilient to strong US data

The spot turned higher today to clock a high of 1.5767 levels. At the moment, the pair is trading at 1.5744; just below 1.5749 (23.6% Fib R of 1.5168-1.5927). The pair witnessed gains despite of an upbeat US personal spending report released today. The official data showed consumption rose at a fastest pace since 2009. Moreover, an upbeat spending report cements rate hike expectations in the US – with the first rate hike seen happening in September. 

The Fed policy statement released last week did indicate two rate hikes this year, while indirectly stating a high possibility of a rate hike happening in September. Fed’s Powell went a step further and called for a full percentage point rate hike this year in case the economy expands as expected. Still, the GBP/USD pair managed to sustain above 1.57 on a closing basis. 

No signs of risk aversion in European bond markets despite Greek impasse

Furthermore, the markets also appear convinced that a last minute Greek deal would be reached before the June 30 deadline. This is evident from the fact that the EUR/USD pair has managed to hold above 1.12 today, even though the Eurgroup discussions on Greece were indefinitely suspended. So the EUR/USD pair could head into the weekend with a slightly weak undertone rather than a massive sell-off. In such a case, the doors are open for the GBP/USD pair to rally. A mild sell-off in the EUR/GBP could also support gains in the GBP/USD pair. 

However, it remains to be seen if the markets stay resilient on Friday. With no deal in sight, fresh signs of risk aversion should emerge in the European bond markets – Sell off in periphery bonds (yields rise) accompanied by a rise in German bunds (yields drop). In such a case, the European currencies are likely to suffer losses against the USD. 

As for now, the bond markets across the Eurozone and the US are calm. The 10-year German bund yield is up one basis points, while US counterpart is up more than three basis points. Thus, once again doors appear open for the GBP/USD pair to rally.

Technicals – A daily close above 1.5749 is bullish

The spot currently trades at 1.5743. With no signs of risk aversion and resilience in GBP despite strong US data, the pair is more likely to take out 1.5749 (23.6% Fib R of 1.5168-1.5927) and head towards a re-test of 1.5876 (50% Fib R of 1.7190-1.4564). A daily close above 1.5749 today could also negate the effect of a bearish 5-DMA and 10-DMA crossover. 

Caution - the long GBP trades could see heavy unwinding if signs of risk aversion emerge in the European bond markets- rising periphery yields and falling German yields. In this case, the pair could turn lower and target 1.5638 (38.2% Fib R of 1.5169-1.5928)-1.5600 heading into the weekend.