GBP/USD: outlook for May 1-5

GBP/USD: outlook for May 1-5

The British pound spiked to 1.2940 despite a disappointing UK GDP figures for the first quarter of 2017. Although GBP is overbought it has room for an extension to 1.2950 in the short term. In the longer term, the upward momentum might disappear as soon as the Brexit negotiations play out. GBP/USD currency pair regained its ground after UK Prime Minister Theresa May surprised markets by calling a snap general election on June 8.

While the election might strengthen the Conservative party’s position it will be extremely challenging for the UK to get a satisfactory agreement in the talks. German Chancellor Angela Merkel laid down a tough line for Brexit talks with the UK striving to remind Britain that it can’t expect a soft Brexit. A summit of EU leaders to conclude their response to the UK’s notification of exit will be held on April 29. So, the pound might be hurt on Monday in the early hours of the Asian session. In terms of economic data, we will be waiting UK manufacturing and construction purchasing managers’ indexes in the beginning of the week. The main focus will be on Wednesday’s FOMC meeting and Friday’s labor market report from the US. The Fed is widely expected stay on hold. So, the USD shouldn’t experience significant changes. NFP, unemployment rate and wage growth figures might bring some moves to the chart.

On the GBP/USD technical chart, we might notice that Splash and ledge pattern was implemented. Prices broke the upper border of the ledge (1.2900) and moved higher towards 1.2950 There is a small room for extension towards 1.3000/1.3020. The current upward momentum shouldn’t last long, though. Stochastic is trading in the overbought area for a long period of time. So, we will be waiting for some pullbacks towards the recent resistance levels, or lower, towards 1.2800, 1.2750 levels.  

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