GBP/USD Close To Trend Line

The Pound has given back all of the gains made early in the month and is now on the trend line. There is not a great deal of news in the market early this week so it is likely to play off technicals, in which case we can expect a bounce off the trend line and a movement higher, however, later in the week it will be volatile.

GBP/USD

The Pound has been on a bull run against the US Dollar for over a year as the outlook for the UK looks ever betterdespite the US having its own economic recovery. Recently however, the pound has given back some gains as the timing of potential interest rate rises in the UK still remains unclear and as the US Federal Reserve Chairwoman Janet Yellen gave Dollar bulls hope by saying that US interest rates will rise sooner than expected if the labour market continues to improve.

Inflation in the UK is not really posing a threat at 1.9% annually, however GDP is looking solid at 0.8% per quarter. Essentially there is no desperate need for the Bank of England to raise interest rates, however minutes from their recent meeting suggested that members see diminished risks to growth from a rate increase. This opens the door for the Bank of England to possibly begin to outline a timeframe for a rate increase, which will certainly boost the Pound.

This week will begin quietly for the pound, however, come Friday we have the UK manufacturing PMI figures and the biggest event of all; the US Nonfarm Payroll data. The US is expected to have added 230,000 jobs this month, down slightly on the 288,000 last month, but nonetheless a robust figure if it comes to fruition. This will add plenty of volatility to the market so traders should beware.

Up until Friday, we should see the GBP/USD pair trade off technicals and the most obvious movement is a bounce off the bullish trend line. The price appears to have touched the trend line at the end of last week and found support at the 1.6958 mark. Once the resistance is broken above the 1.7000 mark, we should see a relatively quick movement up to previous levels and to even test the five year high recently posted.

GBP/USD

Traders could look to enter once this resistance is broken, with a stop loss below the trend line, in case there is a breakout lower. Several targets can be chosen for a movement higher, with previous resistance at 1.7060 being the first. The previous five year high at 1.7190 will also be a likely target.

The bullish trend line on the GBP/USD is likely to come into play this week and a bounce higher is the probable outcome. US Nonfarm Payroll data is likely to provide volatility at the end of the week and is something traders should keep an eye on.