GBP/USD – poised to resume major bearish trend?

GBP/USD began the new trading week on Monday by extending its recent retreat from last week’s one-month high above 1.4600, which is also where its 50-day moving average was situated. This retreat follows a sharp rally within the past couple of weeks that represented an upside pullback within the larger bearish trend.

While significantly lowered expectations of a US Federal Reserve rate hike in the foreseeable future may have capped the dollar’s strength for the time being, the Bank of England (BoE) is arguably even more dovish than the Fed may be when it comes to raising interest rates. As recently as last week, the BoE confirmed expectations that a UK rate hike, which has long been anticipated, will be put on hold even further, with no real indication as to when such a rate hike may occur. The BoE vote to keep rates unchanged was unanimous, and was accompanied by lower forecasts for inflation, economic growth, and wages.

As central bank dovishness now abounds globally, the relative degree of such dovishness may be turned to for hints regarding potential currency trends, when other factors remain constant. In the case of GBP/USD, a BoE that consistently maintains a more dovish stance than the Fed would be a clear bearish signal for the currency pair.

Such a scenario corresponds with GBP/USD’s longer-term technical trend and outlook. The noted rally in the past couple of weeks was little more than a conventional upside pullback within the context of a strong downtrend that has been in place since at least mid-year of last year. This rally retraced 50% of the latest slide (from mid-December down to January’s new multi-year low of 1.4078), before starting to retreat late last week.

In the event of an extended retreat with sustained trading below the 1.4500 level, a continuation of GBP/USD’s entrenched bearish momentum could prompt a further drop to begin targeting the 1.4250 and then 1.4000 support objectives once again.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account