GBP rally has stalled.  US GDP Data and Fed will determine short term USD strength.

FUNDAMENTAL

US GDP data released today (May 27) at 13.30 BST

Brexit: In the absence of economic releases in the early part of this week price action responded to polling data on the UK EU Referendum, generally boosting GBP as polling data showed a “Bremain” majority.  Mixed polling releases on Thursday may have neutralised this sentimental driver.  The potential dire implications of Brexit for the UK Economy will continue to add volatility to GBP and draw speculation until after 23 June.

UK GDP: UK GDP came in approximately as expected, on target for Q1 and a very small miss for year on year.  This does not remove generally positive sentiment around the state of the UK economy (ignoring Brexit for a moment), with solid unemployment data and slight misses on CPI earlier this month.

US Rate Hike: the Fed FOMC revealed its April minutes last week and stated it would be looking for a rebuttal of March’s soft economic data.  Data such as positive Average Hourly Earnings, CPI and solid Durable Goods data has provided optimism that June is really on the table making the Dollar strong.  This optimism has waned in the last few days with Fedwatch indicating a 26.3% likelihood of a June rise (down from as high as 37% earlier in the week).  Yellen will speak at Harvard today and may use the opportunity to increase speculation – the Fed clearly wants June to be a live meeting and will talk it up.

US GDP:  Quite simply, with intense speculation around the June Fed Hike, a  US GDP Data beat will rally the dollar, and a miss will soften USD.

Summary: USD and GBP are strong currencies and are both at the leading edge of the global recovery.  The potential June 15 Fed Hike and June 23 Brexit Poll are adding to volatility with most speculation on the near-term.

As both GBP and USD are strong you may wish to pair them off with a weaker currency such as NZD or CHF.

There is the potential for both to get stronger if the US Economic Data remains upbeat and UK polling favours “Bremain”.

TECHNICAL

After GBP completed its weekly M2 – M4 pivot rally the USD was able to take back control, currently testing the weekly R1 as support.

US Data seems to be meeting expectations so a trip to support at the downside seems likely: 1.457 being the first major band of resistance which opens the door to 1.45 if broken (Chart A).  Daily stochastic is overbought and H4 is descending.


A US GDP miss could rally the pair but on the basis of only “OK” UK data
yesterday it would have a hard time challenging the previous high of
1.477.  Having said that, GDP data that completely takes a June hike off
the table could send the pair sky high.  If Brexit is discounted,
previously comparable interest rate circumstances would be mid Dec 2015
when GBPUSD was at 1.51 (Chart B).

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