USD and GBP are strong, with GBP sensitive to Brexit data.
FUNDAMENTALS

There are no major economic releases affecting the pair today.

The most important releases remaining this week are:

Thursday 26 May:

UK GDP Data (09.30)
US Durable Goods Data (13.30)

Friday 27 May:

US GDP Data (13.30)
US Core PCE (13.30)

(Times are GMT+1)

The Dollar is still buoyed by the Fed’s hawkish FOMC Minutes release last Thursday (May 19) in which Yellen and co commented that a June rate rise is on the table if certain economic factors are satisfied.

Broadly, in order to give clearance for a June hike the Fed wants to see:

– A rejection of the general loss of momentum present in March’s economic data
– Signs of real inflation
– maintained or increasing levels of domestic spending (watching PCE)
– Maintained or increasing levels of manufacturing and production

The Fed will also probably not hike in June if the UK’s EU Referendum looks likely to vote out.

Fed Funds Futures have displayed an increasing belief that June is viable, with the Futures prices indicating a 37.5% likelihood of a June hike and a 59.8% chance that the rate will have been increased at least once by July.  This is streets ahead from where the indicator was a fortnight ago, making the dollar very firm.

Pound Sterling has made gains recently on the back of reasonable economic data and the release of surveys claiming that the UK is most likely to vote to remain a member of the European Union in the referendum being held June 23.

Brexit is increasingly dominating speculation around GBP.  The UK Economy’s vital signs are good: it is viewed as the next central bank likely to be in a position to raise interest rates but only if it remains in the EU.  An “out” vote (“Brexit”) is totally uncharted territory with speculation generally to the downside and a major devaluation of the GBP.

Speculators are forced to pre-empt this with very little solid polling data and accordingly poll forecasting seems to be playing a disproportionate role in the strength of the GBP on a short term basis.

GBP Bulls should be wary of negative Brexit polling data: at least one such forecast (the British Election Study) remains to be released by the end of this week and I believe may be released today – it will forecast a tied vote with Brexit potentially winning based on turnout.

TECHNICALS

GBP bullish but at short term resistance.

GBP’s recent bullish movements have pushed the H4, D1 and W1 Stochs into overbought territory.

GBPUSD has reached medium term resistance around 1.465 and with prices overbought by most measures and dollar strong, it will be tough to break through.

However GBP bulls are clearly in the market, with higher highs and higher lows forming for the past four months and price seemingly finding support first on the daily 55ema and more recently the daily 21ema, perhaps indicating a shift up in gear.  However a higher high was not formed when price recently encountered medium term resistance (Chart A).

The H4 chart (Chart B) shows GBP making a move higher but respecting established resistance around 1.462 just below the weekly R1 Pivot.  H4 Stoch is overbought which, with resistance, implies a likely move down.

In the absence of negative Brexit data, and a decent GDP showing, the pair has potential to rally again before the end fo the week suggesting that the next level of support at 1.457 would make a good entry for GBP Bulls if it holds.

Bad Brexit data and/or poor UK GDP data tomorrow could force the pair down with the first tier of major resistance at approximately 1.44 and below that 1.43.

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