The British pound currency had a torrid week against the US dollar last week as a promising sterling rally above the 1.3350 level quickly fizzled out as Chair Powell expressed concerns about inflation.
Sterling is in a real dilemma this week, as a number of factors, such as fundamentals and monetary policy continue to weigh on the British currency, while the technical are bearish.
Just too muddy the waters BoE member Michael Saunders said on Friday that a key consideration for him at the December policy meeting will be the possible economic effects of the new Omicron variant.
Saunders said, “It is likely that any rise in bank rate will be limited given that the neutral level of interest rates remains low.” And “Provided we do not delay too long; it should be a case of easing off the accelerator rather than applying the brakes.”
This would hint that the BoE could still hike rates this year, but only marginally, if COVID-19 risks are contained. We should also consider that the FED may hike rates this month as well.
Looking at sentiment, the ActivTrader Market Sentiment tool shows that traders are currently very positive towards sterling, despite the massive pullback from the October highs.
The current reading shows that sentiment is at 72 percent right now. This bullish sentiment skew could mean that GBPUSD pair is due for more losses this week, so buying sterling is still a risky proposition.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, huge amount of bullish divergence has formed during the recent epic price drop, and it easily extends towards the 1.3500 resistance zone.
Traders should note that bulls need to defend the 1.3200 level this week to avoid a big drop towards the 1.3000 level. Failure to crack the 1.3200 level could see the 1.3500 level tested.
See real-time quotes provided by our partner.
GBPUSD Medium-term Technical Analysis
According to the daily time frame, the GBPUSD pair has formed a large head and shoulders pattern, which has yet to fully reach its downside target.
The pattern projects that the GBPUSD pair could drop some 400 points if weakness persists under the 1.3400 support region, taking it towards the psychological 1.3000 level. A final right hand could form if sterling bounces from current levels around the 1.3400 to 1.3500 area.
See real-time quotes provided by our partner.