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The British pound currency has started to consolidate around the 1.3400 level against the US dollar as concerns about rising COVID-19 Omicron infections in China cause most asset classes to atheist ponder the consequences if the situation were to become much worse.
Judging by the British pound’s previous behaviour, a rising number of infections from China would likely cause a major bout of US dollar strength, and therefore start to harm sterling.
In the UK, Boris Johnson faces a crunch decision on Monday on whether to trigger new coronavirus restrictions to prevent a renewed wave of Omicron infections around the New Year.
The prime minister will be briefed by his chief medical officer Chris Whitty and chief scientific adviser today on the latest data on infections, hospitalisations and deaths for the first time in three days after a break for Christmas. His decisions over the coming days will likely be a big market mover for sterling.
A crucial issue will be whether or not the Prime Minister intends to impose much harsher restrictions in the United Kingdom. This is where we are likely to see risk-off or risk-on sentiment cause the next move in the GBPUSD pair.
Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are currently slightly bearish towards sterling, despite the rally towards the 1.3400 level.
The current reading shows that sentiment is at 54 percent is not a big skew either way. For me, buying sterling is still very risky, and it is probably best to gauge the strength around the 1.3400 level and the latest move in the US dollar index before moving on news developments.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, technical analysis shows that the GBPUSD pair is trading above the neckline of a large head and shoulders pattern, around 1.3350.
Traders should note that the Ichimoku indicator shows that the GBPUSD pair is relatively overstretched, as the price has moved a considerable distance away from the Ichimoku cloud, indicator a possible reversal risk.
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GBPUSD Medium-term Technical Analysis
According to the Ichimoku indicator on the daily time frame, the GBPUSD pair is still bearish over this time frame, and is consolidating right around cloud resistance, at the 1.3400 level.
The GBPUSD pair is also receiving a sell signal from the Lagging Line, as it remains below the Ichimoku cloud. A reversal from current levels seems to easily put the 1.3300 level back in focus.
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