After mixed data earlier in London, GBP/USD advanced and tentatively respected the 50-day SMA. The pound rose after employment hit a new record high, jumping 238,000 to 31.049 million. This release drove down the unemployment rate to 5.6%, the lowest level since July 2008. A bigger improvement with both the claimant count and average earnings index were expected and that is why we may have seen the sterling rise capped by the 1.5050 level.
Solid U.S. data also helped the currency pair give back its earlier gains and fall below the psychological 1.50 level, but that slide may be short-lived as the US had a rather poor week regarding economic statistics. This week’s big misses include US Retail Sales, NY Empire State Index, Industrial Production, Building Permits and jobless claims. If we see continued weaker data over the next couple of weeks, some economists might start ruling out a Fed rate hike by September.
The GBP/USD daily chart shows that rebound from the April 13th low of 1.4564 has tentatively triggered a strong 5-day rally. If bullish momentum persists, we may not see selling pressure until price tests both the 100-day SMA which is trading at 1.5217 and the longer-term bearish trendline that began on July 15th with the 1.7190 high. If the dollar bulls come back in force early next week, we may see strong support from the 1.4750 handle.
The trade: Buy GBPUSD at 1.4975 with a stop loss at 1.4925 and a take profit at 1.5175.
The Risk/Reward Ratio is around 1: 4
Edward J. Moya
WorldWideMarkets Online Trading