GBP/USD Forecast: Cable Continues to Grind Higher

• The first thing I see is that the GBP/USD exchange rate broke well above the 1.33 level during the trading session, and therefore I think it’s only a matter of time before we go much higher.
• After all, we have recently broken out above a somewhat significant resistance barrier, but we have also had several fundamental issues going on at the same time that could continue to propel this market higher.

Central Banks

Central banks have been front and center this week, with the Federal Reserve cutting 50 basis points. The Bank of England on the other hand has decided to do nothing, which was a sign of the British pound probably being a better place to put money to work, at least in the short term. That being said, as traders start to focus on the idea that a 50 basis point cut coming out of the Federal Reserve might have been something to do with being panicked, or perhaps worried, that could have people jumping into the US dollar for safety in the form of the US Treasury market.

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As things stand right now, the vote in London suggest that we are nowhere near cutting interest rates in the United Kingdom, and therefore it’s likely that we would see the British pound strengthen over the longer term. Short-term pullbacks should continue to be buying opportunities, at least down to the 50 Day EMA indicator, which is closer to the 1.30 level. If we were to break down below there, then it could change a lot of what’s going on right now, but in general I think this is a situation where any time we pull back, there will be plenty of people willing to get into the market and take advantage of “cheap British pounds.”

Over the longer term, we could go looking to the 1.35 level, possibly even the 1.40 level, but we also could see the market panic, and in that environment the US dollar will swallow everything, including the British pound. Expect more volatility, but it certainly favors the upside at the moment.

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