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The British pound incurred another strong down week against the US dollar last week, despite the greenback losing ground against most major currencies and a strong rally in the FTSE100, and a new all-time in the FTSE250.
Sterling shrugged-off optimism of the United Kingdom coming out of lockdown, and bullish PMI construction data from UK economy last week. Strong gains in the EURGBP cross pair also added to downside pressure be placed on the pound.
This week sterling is likely to be equally affected by fundamental and technical factors. The release of UK GDP data, and CPI inflation data from the United States could clear up the near-term price path for the GBPUSD pair.
In terms of technicals, things do not look so good right now for sterling. The GBPUSD pair has moved below its 200-period moving average on the four-hour time frame for the first-time since October 2020.
More worryingly for the medium to long-term technical, the weekly MACD indicator is trending in the red, which is something that has not happened since March 2020. The GBPUSD pair is therefore entrenched in correction mode.
Traders may use any sterling rallies to sell into this week. A notable head and shoulders pattern is also pointing to heavy losses below the 1.2670, which is a price area that bulls have been keenly defending.
According to the ActivTrader Market Sentiment tool some 56 percent of traders are bearish towards the GBUSD pair, which is a 2 percent increase since last week. This could indicate that near-term upside is likely until the heard turn heavily sterling bullish once again.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, a bearish head and shoulders pattern has been steadily forming in the background, and is warning of a coming, and fairly steep price drop towards the 1.3500 level. Bears need to hold the price below the 1.2670 support level to activate this increasingly large bearish price pattern.
In terms of strategy the GBPUSD pair has a high probability of activating this bearish pattern while the price trades beneath its 200-period moving average, around the 1.3890 level.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame the GBPUSD pair could be headed back to major trendline support. This makes sense as it would basically test the integrity of the ongoing uptrend, which started September 2020.
Traders should note that this key trendline comes in around the 1.2550 level and is the preferred target over the medium-term. If the US dollar index really starts to strengthen then this key trendline could be broken, and we could therefore expect a drop towards the 1.3380 area.
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