GBPUSD hits 1.42 on Tuesday as the dollar continues to wear out. The cable is close to breaking the year’s high at 1.4245. How further high can it go?

The support at 1.4 is strong enough to propel the Sterling above 1.42 for the first time in nearly three months. That means GBPUSD has gained over 200 pips in less than a week. The move is largely triggered by a depreciating dollar although better job data has given GBP some advantage this week over its peers. Also, the enthusiasm that followed yesterday’s lift on restrictions has lifted the currency and given it a strong advantage over its peers.

A record high for the year will soon be attained as GBPUSD nears 1.4245. The Cable is now well-positioned to record a 3rd straight bullish week for the first time since the February-March dip. Although while cable traders enjoy the ride, attention will shift to the BoE Governor’s speech coming later today before the FOMC minutes on Wednesday for more momentum.

GBPUSD Analysis – what next?

The UK has always been at the front concerning vaccination progress. This is yielding result as some restrictions have now been lifted from today. Also, the country looks forward to June 21 for the final stage of lockdown easing although fresh reports doubt as new Indian variants call for caution. Meanwhile, UK policymakers have vowed to continue vaccination as plans emerge to roll out second doses for those over 50 years old. Investors are quite optimistic especially after recent job reports saw the country’s unemployment rate down to 4.8% beating market expectation. Despite the restrictions in the past months, UK’s employment surged 84k and vacancies for jobs increased 13%.

Meanwhile, as the Sterling bounces on economic optimism, the dollar continues to fall broadly as inflation fears wear out. The greenback is now off to prices below 90 – the lowest since January 7. Investors worried about inflation after last week’s CPI surge. However, the Fed continues to calm down nerves, saying the current inflation situation is transitory. Some Fed officials have indeed played down the fact that inflation surge would influence the Fed’s next decision. The next rate hike consideration would be next year at the soonest while the bond purchasing program will continue at the current rate throughout the year. The dollar is expected to lose more ground unless Wednesday’s FOMC minutes give a shocker.

GBPUSD technical analysis  

With the current situation, it’s very much expected that the Cable will hit a fresh YTD high before the end of this week. This will happen especially if Wednesday’s FOMC plays down on inflation which is very much likely. The major caveat is if the UK pauses or extends its June 21 plan as feared or the NI protocol outstanding post-brexit issue becomes serious. Otherwise, the technical print below suggests the current rally will break above 1.424 high to 1.4352.

Since the bearish correction from 1.4241 ended at 1.3665, the market has been advancing into an impulse wave structure. The current wave (3) could extend to a 161.8% projection of (1) from (2) which is usually the minimum for the 3rd wave. Between 1.435 and 1.44, traders can then anticipate bearish reactions for the start of (4) if (3) is not overly extended. Therefore, the best outlook going forward will be to buy the dip on the lower time frames.

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