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The British pound currency trades at a 16-month low against the greenback, as a combination of risk-off market sentiment and US dollar buying keeps the pair under heavy downside pressure.
Aside from the Ukraine and US dollar strength weighing on sterling, market sentiment towards the GBPUSD pair is also under fire due to bearish commentary coming from the Bank of England.
The UK central bank has said that Brexit has hindered Ukraine aid, and the Brexit fallout will cause year to finance, making the UK a second-rate power. The Bank of England may also raise rates this week.
I would suggest it could have only a minimal impact on the GBPUSD pair if a rate rise does come, especially if we consider that the FED could raise rates by around 50 basis points next week.
This week we also have the US CPI reading, which is going to be the big one in terms of key economic releases. The United Kingdom also releases a strong of back-to-back data releases this week.
At present, the chart for the GBPUSD pair looks very bearish, and as I will discuss in a moment, all indications are that the pair is going to break the 1.3000 level will relatively ease.
Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are currently bullish towards sterling.
With 74% of traders turning bullish, it should be noted that the shift since last week is quite large. For me, the strong bullish bias is a contrarian bearish signal, and more losses are likely.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, technical analysis clearly shows that that GBPUSD pair has ignited a large head and shoulders pattern, which holds substantial downside potential.
According to the size of the bearish pattern the GBPUSD pair has a target of 1.2900 in the short-term, which of course suggests another 200 points of short-term losses ahead.
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GBPUSD Medium-term Technical Analysis
According to the weekly time frame, the GBPUSD pair has formed a huge amount of negative divergence on the Momentum indicator and could decline towards the 1.2600 level.
The GBPUSD pair is clearly in a bearish trend, and we could be about to see the fundamentals making a big dent on the GBPUSD pair, and further sinking it lower towards the mid 1.2000’s.
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