The British pound continues to rise against the US dollar on Friday, as we have seen a lot of strength in the UK economy.
GBP/USD
When I think about the British pound, the first thing that comes to mind is the fact that it has been much more resilient against the US dollar over the last couple of years than many of its counterparts. So, the fact that on a day that the US dollar is softening, the British pound is really taking off to the upside is not a huge surprise.
In fact, the British pound is threatening an area that I think is very important in the form of 1.3550. If we can continue a little bit higher, then it will be a confirmed breakout to the upside. The 1.35 level has been like a magnet for price, so if we were to turn around and start selling off, that might cause more consolidation.
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Unexpected Resilience
But the British pound is the clear G-10 outperformer today, driven by a divergence in economic data. The pound surged after this morning's retail sales and preliminary PMI data significantly beat expectations. This signals that there is unexpected resilience in the United Kingdom's economy, forcing traders to price out immediate Bank of England rate cuts.
At the same time, you have global US dollar weakness, so it ties together quite nicely. If we break out to the upside, it's likely to continue to be a move that could go looking to the 1.38 level. Beyond the US dollar, I'd be looking to buy the British pound against multiple other currencies. The first one that comes to mind actually is the Swiss franc.
But as things stand right now, this looks like a market that is going to make a decision here, possibly by the end of the Friday session, to determine where the next 200 pips come from.
Potential signal: If GBP/USD CLOSES above 1.3570, its time to aim for the 1.3650 level, with a stop of 1.35
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