How High Can Sterling Go? Watch Out For A Reversal

Dear Traders,

The best performer Tuesday was the British pound which rallied above 1.32 and headed for a test of the resistance level at 1.3340. The recent relief rally was due to a lower degree of political uncertainty with Theresa May preparing to take over as the U.K.’s next prime minister. Investors hope that the whole process of Brexit uncertainty could now be shortened and therefore showed greater readiness to take risks. However, we don’t expect the recent uptrend to be sustained as the pound’s next risk event will be Thursday’s monetary policy decision. The Bank of England is expected to take a much more aggressive tone and cut interest rates by the end of summer. Given that dovish tilt it will be difficult for sterling to hold onto its recent gains.

Once sterling is able to climb above 1.3360, it could even head for higher targets around 1.3480. We already achieved a good profit with our long-entry at 1.3065, which is used as a swing trade. Additional swing and long-term entries are only available to subscribers of our signal service. If sterling drops back below 1.32/1.3180 we expect bearish momentum to increase, driving the pound towards 1.29.

The euro’s modest performance continued on Tuesday and it seems as though investors have withdrawn from the EUR/USD, making it an unattractive currency pair to trade. As long as the euro remains within its range between 1.1130 and 1.10, we will have to be patient and wait for price breakouts above or below that zone. Above 1.1130, the euro might be able to climb towards 1.1165 and 1.1185 but for the time being, any upward movement could be limited until these resistance levels. After a break below 1.0970 we expect bearish momentum to increase, driving the pair towards 1.0940 and 1.0830.

There are no major economic reports scheduled for release today. Eurozone Industrial Production figures (9:00 UTC) and the U.S. Import Price Index due at 12:30 UTC could have a minor impact on the currencies.

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