British Pound: Bullish flag points to range highs against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret see the British Pound (GBP) supported by stronger-than-expected UK labour data. Unemployment fell to 4.7% versus 4.9% expected, while earnings excluding bonuses rose 3.7%, reinforcing Bank of England (BoE) tightening expectations. Technically, the strategists identify a potential bull flag on the short-term GBP/USD chart, suggesting scope for further gains following a strong bullish weekly reversal.

Solid UK data underpin bullish structure

"UK data for August showed Unemployment of 4.7%, below forecasts of 4.9%, while Average Hourly Earnings data were in line with (or slightly above) expectations. Earnings ex-bonuses rose 3.7% in the 3m through August, above calls for a 3.6% gain."

"The data reinforced BoE tightening expectations and gave the GBP a modest lift on the day. The BoE’s Megan Greene speaks at 13ET. In recent remarks, Greene has focused on the risk of second round effects emerging in price trends, suggesting the Bank should “proactively” lean against them."

"Greene, alongside Pill and Mann have supported tightener policy since the summer and look set to get their wish at the November 5th MPC. "

"Bullish – The GBP is consolidating gains on the short-term chart via a potential bull flag pattern. That development keeps our focus on the risk of gains extending quite significantly in the short run after the solid GBP rise from last Wednesday’s post-US CPI low drove a huge bullish weekly reversal on the chart (outside range week)."