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Upside potential to near 1.65 for GBP/USD - TD Securities

FXStreet (Łódź) - Shaun Osborne, Chief FX Strategist at TD Securities believes GBP/USD could move higher up to 1.65 area if it breaks out from the current levels.

Key quotes

"Rally in sterling may need more than technical factors to drive it. Short-term swap spreads are turning higher in the GBP’s favour, for example, after the pronounced UK-driven decline since midyear (and relative UK-US data surprises are nearing an extreme). But, with the latest comments from BoE policy-makers sounding more dovish (and little in terms of UK data on tap in the next few days to drive interest rate moves to any significant degree), more GBP-supportive spreads may hinge on what the Fed does (or says) tomorrow."

"Our base case is that QE3 ends and that there are no changes to the forward guidance framework. Given the build up of expectations that QE3 may be extended for a few more months in the wake of recent market volatility, the Fed staying “on message” should be somewhat USD-supportive. A dovish surprise is required to drive GBPUSD higher on the face of it in the near-term and we think that is a low risk probability at this point."

"GBP positioning is neutral (on the basis of IMM data released last Friday) and the extended move lower in Cable since the middle of the year is looking a little oversold on the longer-term technical studies. There is potential for a move higher to develop quite quickly, if a break higher can be seen."

"We think long GBPUSD positions are worth considering in the event of a clear move through 1.6185 (above the 40-day MA, rather than the neckline trigger, in other words) over the next 24 hours (buy on a stop entry basis at 1.6205)."

"A pop higher in Cable fits with the generally less constructive, near-term outlook
for the USD we have outlined recently after the extended rally since mid-year. But we would use a tight, trailing stop (1.6165 initially) as seasonal trends do turn more adverse for the GBP through early November and if the seasonal effect if small, it is consistent (GBPUSD has weakened 70% of the time in the month of November in the last 20 years)."

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