GBPUSD Technical Analysis – 1.3000 is now a valid target

The British pound currency has had a bad start to the week against the US dollar as the COVID-19 first omicron-linked death hurt market sentiment and prompted UK equity markets to fall.

Sterling is back to the 1.3200 mark and close to breaking down under its yearly low. A continuation of market fears is likely to see the GBPUSD pair trading towards the 1.3000 level into year-end.

As traders and investors factor in rising infections and the first death linked to the omicron variant in the UK, we are probably going to see more sterling weakness as the British pound is closely linked to stocks.

Boris Johnson, the British PM, raised the COVID alert to four, raising the specter of further lockdown which could harm the economic outlook for the UK economy if it comes to pass.

We should also consider the Federal Reserve and Bank of England’s last monetary policy meetings in the year this week. Without a rate hike from the BoE, sterling is probably looking lower.

On Friday BoE member Michael Saunders said 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 50 percent of economists think that the BoE will not. I think the chances are fairly low as the BoE probably need to time to decide.

Looking at sentiment, the ActivTrader Market Sentiment tool shows that traders are currently still positive towards sterling, despite the massive pullback from the October highs and COVID-19 fears.

The current reading shows that sentiment is at 63 percent and has dropped slightly since last week, however, this bullish sentiment skew could mean that GBPUSD pair is due for more losses this week, so buying sterling is still very risky.