BOE Governor Mark Carney has prompted a re-think about the timing of UK rate hikes, sending sterling higher even after months of gains.
The current level (1.70) is just below the average of the last decade (1.7140). This area is clearly a pivotal one psychologically too. GBP/USD broke very briefly through 1.70 before falling back in 1996, 1997, 1998 and in 2009. When it made it through 1.72 in 2003, it kept going until it was above 1.90. When it held above 1.70 on the pullback in 2005, it bounced all the way to 2.10. And so on. So, chart-lovers get excited and if we go to 1.72, they’ll get even more excited.
The RSIs suggests that the pound is overdue a pause, and could spend some time consolidating around these levels. In 1996/1998, GBP/USD spent two years oscillating in a 1.60-1.70 range before heading down through 1.40 so there’s a precedent for a range to establish itself. It’s also true that GBP longs are pretty extreme by recent standards. CFTC data on futures positioning shows GBP longs at their highest levels since 2007, edging just above the levels that were seen before GBP/USD peaked at 1.67 in 2011.
..,what will drive the FX outlook from here, is less what the MPC (ECB or BOJ) does, and more what the Fed’s policy stance looks like. In the meantime, if GBP/USD dips back to 1.6950, we’ll get short again in the belief that the big psychological level has held. Otherwise, we’ll wait for the data in the US to continue improving and aim to get short GBP/USD in September, either here or possibly, higher if we trip the stops around 1.82.
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