GBP/USD pushed to as high as 1.5470 (the hisghest since April 27th) this week week and formed a temporary top before retreating. Before surging upward, the pair broke the previous week low and tested the initial support at 1.4976(see the 4 Hr chart above). The pair went to the lower target-T2 before rebounding during London session. A double bottom formed on Monday and Tuesday signaled that the pair bearish tone has been arrested.
With a weak dollar and a solid U.K. fundamentals and signs that the European debt crisis won’t reach British shores boasted the pound. Despite the austerity measures put forward by the new PM, U.K. economy display signs of being able to sustain growth . Jobless claims declined by 20,800 in June as the claimant count rate fell for a fifth straight month to a one year low. The improving labor market and declining inflation raised the outlook for domestic growth. Indeed, consumer prices decelerated from 3.4% to 3.1% but remained above the central bank’s threshold for a fifth month. Inflation trending lower takes pressure off policy makers to raise rates which would typically be bearish for the pound, but declining from such dangerous level is a positive for the long-term health of the economy.
The surge carried the pair above the upper target of previous week swing high and low I,e,T2 and just beyond the 100% upper target. With a such overbought position, a deep correction is expected that could pushed the pair below the inner retracement of 38.2% of daily swing high and low on Friday. (see the 30 minutes chart below.
Next week, GBP/USD is expected to test the support at 1.5146 before continuation of the bullish mood. Resistance is at the previous high at 1.5515 and ability to penetrate the next resistance at 1.5670 will move the pair to much higher level.
