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The British pound had a volatile trading week against the US dollar currency last week, as the GBPUSD pair suffered from risk-off sentiment at the start of the week and then rallied over hopes of a coming rate rise.
Last week’s Bank of England meeting caused a strong bid-tone in sterling due to the fact that the central bank announced that they would consider raising interest rates if needed due to rising inflationary pressure. However, the initial optimism faded, and the sterling closed last week under the 1.3700 handle.
The big wild card this week for sterling this week is the China Evergrande situation. Sterling is closely influenced by stock market sentiment. Fears about this situation are currently causing some trepidation for GBPUSD bulls.
Other factors for traders to focus on this week include a key testimony from FED Chair Powell and GDP and Manufacturing data from both the United States and the United Kingdom economies.
On the technical front, a huge triangle pattern continues to be the central focus in the short term. The bulls defend the bottom of the triangle pattern last week, provoking a strong technical bounce. If this continues to remain the chance of the GBPUSD pair bouncing back to the top of the triangle, around the 1.3900 level, is dramatically increased.
According to the ActivTrader Market Sentiment tool shows that some 76 percent of traders remain bullish towards the GBUSD pair right now. This is largely in line with last week’s sentiment amongst traders.
The bullish sentiment skew is slightly worrying. Ideally, bullish sentiment will start to decline as the GBPUSD pair starts to recover. If the GBPUSD pair fails to rally this week and actually heads back to the former weekly low I would suggest keeping a close eye on GBPUSD sentiment.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, the GBPUSD pair remains trapped inside a large triangle pattern, with the triangle pattern located between the 1.3620 support level and the 1.3890 resistance levels.
The GBPUSD pair needs to continue to recover from the 1.3600 area and take out the 1.3750 level. If bulls can anchor the price above the 1.3750 level I would expect a test towards the 1.3890 level.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame a massive, inverted head and shoulders pattern continues to play out, with the latest price pullback potentially helping to form a final right-hand shoulder.
Failure for GBPUSD bulls to defend the 1.3600 level this week is likely to prompt a decline towards at leastthe1.3500 area. I would also suggest keeping a close eye on the US dollar index, and particularly the 93.75 level.
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