The British pound/U.S. dollar (GBP/USD) exchange rate has been on the rise since early July with the help of the Bank of England’s optimistic view of the British economy and the Federal Reserve's decision to continue with its quantitative easing (QE) program. However, collective technical indicators may signal a shift in this bullish mood. The GBP/USD rate surpassed the $1.60/pound mark after the Fed's announcement on Wednesday.
Federal Reserve Chairman Ben Bernanke announced Wednesday that the Fed would continue with its QE program, which purchases some $85 billion in U.S. securities per month. Cable, as the GBP/USD rate is known, reached its highest point since January of this year at $1.62 as the trading pair broke through a two-month high of $1.5716. The pair has been on upward trend since maintaining support at the $1.5425 level on Aug. 28.
Simple Moving Average
The 20-, 50-, and 100-day simple moving averages (SMA) all portray bullish momentum on the daily chart. The 20-day surpassed both the 50- and 100-day SMAs on Aug. 13, usually a signal that a short-term uptick will follow. At the time of writing the 20-day SMA was at $1.5703, the 50-day at $1.5511, and the 100-day at $1.5415. The SMA is among the more widely used technical indicators in foreign exchange when it comes to overall price direction.
Between Monday and Wednesday the GBP/USD rate had been trading sideways, suggesting a wait-and-see approach ahead of the Federal Open Market Committee’s Wednesday announcement. Meanwhile, the Bank of England’s optimistic view of the British economy has allowed the British pound to not only appreciate against the dollar but to strengthen against each of the other six G10 currencies this week.
The trend index for the daily time-frame is slightly bullish with an overbought reading of the Overbought/Oversold index. Weekly and monthly stochastic indicators show a Sell bias with the short-term RSI (Relative Strength Index) reading Neutral. These readings show a pullback in bullish bias as some might feel as if a peak is near and that the recent upturn is due for a correction. Overall indicators show a slowdown in momentum, adjusting from Buy to Neutral.
Shaun Hoyes has been a finance writer and blogger since 2011 with a specialty in investments. Hoyes is a financial advisor at a registered investment adviser (RIA) based in Fort Lauderdale, Fla. He holds a bachelor's degree from the University of Miami and a master's degree in business administration.