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The British pound currency has started to test under the 1.3500 level, as traders look past Bank of England rate hike expectations and instead focus on geopolitical tensions and soft UK data points.
Yesterday, data showed that British business activity grew less than anticipated in January, with the UK Purchasing Managers Index hitting an 11-month low, while cost pressures stayed high.
Also on traders mind is the investigation into Partygate at the official residence of British Prime Minister Boris Johnson during Britain’s 2020 lockdown is due to be published this week.
Traders worry that the UK PM could be in his last days if the report reaches a conclusion that Boris Johnson went against his own advice at a time when the British public were in lockdown.
Simmering in the background is of course the fact that the Bank of England that is expected to hike rates in February. Last week, UK inflation rose faster than expected to its highest in nearly 30 years in December.
I have a feeling that the GBPUSD pair is about to go lower before it goes higher, 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 neutral towards sterling.
In reality, largely neutral readings are hard to determine whether we see strength or weakness going down the pipe. It should be noted that 53% of traders expect further gains in the pair, despite sterling being sold on rallies, leaving room for further downside.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, technical analysis clearly shows that that bears are selling into every rally, as seen by the series of lower highs across the lower time frames charts.
This is very negative, and trader should be aware that the recent decline towards the 1.3470 price area is probably not the bottom. A breach of the 1.3470 level could set up much significant downside.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame, the GBPUSD pair has formed a huge head and shoulders pattern that has yet to play out to the downside. The overall bearish target is still the 1.2800 level.
The GBPUSD pair is likely to gravitate towards key trendline support over the coming days and weeks if we see the yearly low broken. Trendline comes in around the 1.2900 and 1.2450 areas.
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