GBP/USD: Surges Strongly Through 1.56 To 2-Month High

 | Aug 16, 2013 02:01AM ET

GBP/USD for Friday, August 16, 2013

The GBP/USD has reversed well over the last couple of days to surge higher through the resistance level at 1.56 to a new two month higher around 1.5650. It moved back to the 1.5450 level, after having spent the last week or so moving higher and breaking through the resistance level at 1.54 pushing towards further resistance near 1.56. The resistance level at 1.54 was proving to be quite solid, and once it broke through the pound surged higher to a new seven week high near 1.56 in a solid 48 hour period run. In the week leading up to this the pound had recovered strongly and returned to the previous resistance level at 1.54 after the week earlier undoing some of its good work and falling away sharply from the resistance level at 1.54 back down to around 1.5150 and a two week low. A few weeks ago the 1.54 resistance level stood firm and the pound fell away heavily, however the 1.51 support level proved decisive and helped the pound rally strongly.

Earlier in July after having done very little for about a week, the GBP/USD started to move and surge higher and move through the 1.52 and 1.53 levels to the one month high above 1.54. Prior to the move higher, it moved very little as it found solid support at 1.51 and traded within a narrow range above this level. It established a trading range in between 1.51 and 1.52 after it took a breather from its excitement just prior when it experienced a strong surge higher moving back to within reach of the 1.52 level from below 1.49, all in 24 hours. About a month ago it did well to climb off the canvas and move back above 1.49 and towards 1.50 again before seeing the pound reverse and head back down below 1.49 to reach a new multi-year low near 1.48. It experienced sharp falls moving from 1.53 down to the key long term level of 1.50 and then through 1.49. That movement saw it resume its already well established medium term down trend from the second half of June and move it to a four month low.

Throughout the first half of June, it enjoyed its best run in a long time as it surged from 1.50 to 1.57 in just a few weeks. Its multiple key levels during its movement up towards 1.57 have appeared to have little impact during its decline in the month afterwards. With its recent surge higher it has nearly regained all of its losses from June and July when it fell strongly from 1.5750 down to below 1.49. Throughout the month of May the pound fell strongly and return almost all of its gains from the few weeks before that. In early March the pound moved to new lows around 1.4830 from a starting point near 1.64 at the beginning of the year.

Hailed as the savior of the U.K. economy when appointed nine months ago, Bank of England Governor Mark Carney is facing growing skepticism just seven weeks after taking up office. Doubts are growing about Carney’s signature policy — guiding markets to expect rock-bottom interest rates for the foreseeable future — given a rapid improvement in the economy’s fortunes in the months between his appointment and first major policy initiative last week. Earlier this month, Carney assured investors that the bank would not raise interest rates until U.K. unemployment fell to 7%, a level that it forecast would not be seen for three years. But the forecast is looking less and less sustainable with each positive economic report. While investors were initially excited about the guidance and home buyers were thrilled at the promise of cheap borrowing for a sustained period, markets expect official interest rates to rise much sooner than the bank predicts.