GBP/USD Is Not Out Of The Woods Just Yet

The bounce in GBP/USD after its fall from a high of 1.3660 on September 20 to a low of 1.3027 on October 6 has been impressive. Since that low was reached last Friday it has climbed back to almost 1.32, helped most recently by an encouraging raft of economic data.

The rally has taken place despite a constant stream of negative political and Brexit-related headlines. The UK’s ruling Conservative Party is as divided as ever on how to approach Brexit, there’s been a failed leadership challenge to Prime Minister Theresa May, her ministers continue to jostle for position in case another challenge is more successful, she is said to be considering a Cabinet reshuffle and talk has re-emerged about no deal being better than a bad deal.

Even given the relative strength of the data and the continuing prospect of an interest rate increase this year by the Bank of England, the Pound’s climb has been striking.

Chart: GBP/USD One-Hour Timeframe (October 2 – 10, 2017)

However, to date, it has only recovered just over a quarter of the ground lost earlier.

Chart: GBP/USD Daily Timeframe (July 12 – October 10, 2017)

The question remains unanswered, therefore, as to whether the latest price action represents a new trend higher or just a correction in a continuing downtrend. GBP/USD is due for a longer rally. However, on balance, this week’s advance still looks like just a correction and further weakness seems probable unless we see several more days of gains.

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