The British pound has scope for further price advancement against the US dollar currency, as the technical and fundamental backdrop surrounding the pair continues to point to a new multi-year trading highs.
Sterling has benefitted from the positive employment data this week, which appears to confirm the Bank of England’s assessment of the United Kingdom, in that the economy in returning to a period of growth after the pandemic. The recent release of the FOMC meeting minutes has caused a price pullback, however, dip-buyers may be rewarded.
Digging in o data this week from the UK this week, we saw unemployment rate drop back to 4.8 percent, with total employment increasing to 75.2 percent. Furthermore, inflationary pressure is increasingly in the UK economy according to CPI and PPI figures.
Rising inflation could put pressure on the Bank of England to raise rates if steep monthly increases in the CPI becomes a trend. Rates are a key driver of currencies, especially when new trends in rates emerge. Many economists have speculated that the era of low rates and low growth are coming to an end. If this comes to pass then the Bank of England may need to cautiously raise rates.
However, the battle the Bank of England faces is raising rates too fast and too high. The central bank will have to be very careful as the UK housing market is extremely sensitive to rate increases, as even a minor increase can spook borrowers.
US housing starts tumbled by nearly 10 percent earlier this week, as surging lumber prices caused house hunters in the United States to stop purchasing due to the rapidly rising price tag of purchasing a new home.
Getting technical, GBPUSD bulls could take aim at the April 2018 trading high if the air slices through the current yearly high, around 1.4240. The April 2018 trading high is found around the 1.4380 area.
According to the ActivTrader Market Sentiment tool shows that some 69 percent of traders remain bearish towards the GBUSD pair right now. Bearish sentiment typically points to more gains. Thus the GBPUSD pair could advance towards the 1.4300 handle as retail traders lean against the prevailing uptrend.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, an inverted head and shoulders pattern continues to play out to the upside, following last week’s key breakout above the 1.4010 resistance level.
According to the overall size of the typically bullish price pattern the GBPUSD pair could be headed towards the 1.4250 level over the short-term horizon.
It is noteworthy that the current yearly high is found at the 1.4240 level. A break past the 1.4240 to 1.4250 price zone exposes the 1.4300 level.
GBPUSD Medium-term Technical Analysis
According to the daily time frame a huge, inverted head and shoulders pattern will be ignited if the 1.4240 resistance level is activated to the upside.
This pattern holds an upside target of 500 points, which means the medium to long-term price path for the GBPUSD pair looks particularly positive.
Just to underscore, the GBPUSD pair could be headed towards the 1.4740 resistance level over the medium-term horizon. Watch out for explosive gains above the 1.4240 level.