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The British pound currency has started to rally above 1.3500 level ahead of the Bank of England policy meeting, due to a big drop in the US dollar index towards the 96.00 support zone this week.
A quick glance at the sterling daily chart shows that the GBPUSD pair has been making bearish lower highs since July last year, meaning that traders have been selling rallies on rebounds.
The nearest most important high is around the 1.3750 level. Watch out for that dynamic to remain in place if we see a move above the 1.3600 today, as traders sell close to former highs.
However, we do need to consider that the fundamentals are driving the technical, and what the BOE say today is going to have a massive effect on the price action of the GBPUSD pair.
Scotia Bank have noted that they “see a 25bps hike but some pushback against market pricing”, which would create GBP downside risks in my opinion. Moreover, the market pricing for the BoE has held steady at a 95-100% chance of a hike tomorrow and a total of five 25bps hikes by end-2023.
The bank “think it’s more likely that the bank delivers only 100bps in rate increases this year, which should eventually act as a headwind for the GBP as markets reprice expectations”.
In terms of price forecasts Scotia see the 1.36 mark as a near-term ceiling for the GBP, noting “it would take a clear sign from the BoE that it is willing to go above its neutral rate for the pound to test 1.38”.
I still have a feeling that the GBPUSD pair is about to go lower before it goes higher again, especially since the charts clearly so sterling making bearish lower highs and lower lows on the charts.
Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are currently 67 percent bearish towards sterling. This is not a great sign.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, technical analysis clearly shows that that GBPUSD is undergoing a correction from the recent fall from the 1.3750 to 1.3350 swing, with the 0.618 Fib acting as strong resistance.
It makes sense that we see a swing from the 0.618 fib, as often happens in clear trend. A fall back under 1.3500 should accelerate the downside risks, while upside risks are increased above 1.3600.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame, the GBPUSD pair has formed a huge falling wedges pattern that has yet to play out in either direction, meaning consolidation between 1.3700 and 1.3100. T
The GBPUSD pair is likely to gravitate inside the key trendline as mentioned. Watch out for a defining moment around the 1.3700 area if the 1.3600 level cracks.
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