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The British pound currency is starting to appear uncertain around current levels against the US dollar, following multiple upside rejections above the 1.3700 level. The fact that buying interest continues to dry-up around the highs of the year is starting to sound alarm bells amongst GBPUSD bulls.
Recently, the GBPUSD pair has been rallying on the notion that the vaccine rollout in the UK economy is doing much better than many other developed nations. The theory being that the UK economy will come out of lockdown quicker than other countries.
Another potential theory behind strength in the GBPUSD pair is the recent rolling-back of any notion that the Bank of England will enforce negative interest rates. Bank of England Governor Bailey recently talked-down any prospect of negative interest rates.
Whether these theories are correct or not, the upside momentum behind sterling is starting to wane, as rallies continues to be sold above the 1.3700 handle. Traders and investors could also be becoming more cautious ahead of the Bank of England policy decision later this week.
Something else to watch is the US dollar index. The big risk for sterling is a major surge higher in the US dollar index over the coming days and weeks. If the buck starts to breakout against most major currencies, like yesterday, it is unlikely that sterling will continue to rally.
In terms of potential bullish or bearish catalysts for US dollar index, the risks are evenly balanced at this stage. The new COVID-19 stimulus package may be bullish for the US dollar, due to the perception that the US economic activity will increase, which may cause US bonds to rise.
Additionally, US economic growth is likely to outpace UK growth during this fiscal quarter if the stimulus package is approved, hence the GBPUSD pair could face headwinds. On the flip side, continued QE from the FED, and any pushback from the Republicans towards the new stimulus package could temper gains in the greenback.
According to the ActivTrader Market Sentiment tool traders are becoming more bearish towards the GBPUSD. Traders may be on the right side of the market move here, it will be interesting to see if the bearish skew towards the pair increases of decreases prior to this week’s Bank of England policy decision.
Source by ActivTrader
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame a large rising price channel is present between the 1.3800 and 1.3420 levels. According to technical analysis selling pressure towards the GBPUSD pair will increase if the 1.3600 support level is breached.
Watch out technical selling to increase in the GBPUSD pair also if the pivotal 1.3610 support level is breached. Continued weakness below this area will be a major sign of upside momentum starting to wane.
Source by ActivTrader.
GBPUSD Medium-term Technical Analysis
According to the daily time frame a large, inverted head and shoulders pattern is in play while the price trades above the 1.3500 level. The fact that both volume and momentum is starting to wane should be a concern.
Additionally, a cluster of daily reversal candle is highlighting the indecision towards the GBPUSD pair around the 1.3700 level. According to the Bollinger Bands indicator on the mentioned time frame failure to overcome the upper Bolling Band, around 1.3750, could result in a reversal towards the lower Bolling Band, around the 1.3500 level.
Source by ActivTrader.
