The cable has been one of the last major currency pairs to take advantage of the ongoing dollar weakness. Today, it broke to its best level since early May as it extended its rally for the third week, with the Dollar Index closing lower for the second straight month in June and was down for the sixth consecutive session at the time of writing.
Sentiment towards the pound has also improved due to optimism surrounding the re-opening of the U.K. economy, although ongoing Brexit uncertainty is likely to remain a longer-term macro concern. But traders are not focusing too much on Brexit at the moment, which is why the pound has found support.
In the short term, the extent to which the cable will rise or fall will likely depend almost entirely on what the wider markets do. If “risk-ON” continues to remain the dominant theme, then the GBP/USD will likely continue higher as the greenback loses out further due to lower haven demand. And vice versa, if risk appetite turns sour.
So,
this week’s upcoming US data releases, which includes Friday’s jobs report, will likely not cause too much of a reaction in the GBP/USD, IF the report is not significantly weaker than anticipated. Indeed, if the data turns out to be better than expected, this will likely underpin risk assets further, which should mean a small positive reaction for the safe haven dollar. So, FX pairs including the cable will probably only fall a little on the back of potentially stronger US data. If the US data turns out to be only slightly weaker, then the dollar will likely not react too negatively.
BUT, if we see a massive disappointment, especially on the jobs front, then paradoxically this may underpin the dollar on haven flows, possibly after an initial negative reaction. That’s the only scenario that I can think that will be negative for the cable in the short-term.
Source: ThinkMarkets and TradingView
From a technical point of view, the GBP/USD looks a lot more constructive than a couple of weeks ago when we
initially turned positive towards it. From here it looks like the bulls may be targeting the liquidity above the double top high around 1.2650, where we have the 200-day moving average also converging. Key support now comes in around the breakout area of 1.2350-1.2395.
So, assuming the current wider market conditions remain the same, the GBP/USD is more likely to continue higher than lower regardless of any short-term hiccups due to data or any not-so-significant news.