GBP/USD Price Prediction: Cable Subject to Further Downside Pressure with Focus on the Bank of England

  • GBP/USD saw its first weekly close in the red after six consecutive weeks of gains.
  • Focus on the Bank of England, as the general expectations are for it to push back rate hike expectations.

GBP/USD prior to last week has been rallying to the upside at quite some momentum. The price was enjoying six consecutive weeks of gains, from the week commencing 17th December, right up to the week of 21st January. Last week was the first weekly closure in the red seen since the bull run start in mid-December. This rally went on despite the huge political instability and even lack of progress at the time on Britain’s departure from the EU.

GBP Optimism Gone

The uncertainty is now finally taking its toll on the pound, given the losses recorded on the week for the pair. As a recap, the British ministers did not put through an amendment that would have seen Article 50 extended in case of a no deal. This was something that assisted in optimism over recent weeks for GBP. There was hope that a safety net would be there should something not be agreed with the EU.

The talks as seen in the last week are not going anywhere. On several occasions now and noted by a variety of EU officials, there isn’t any room for negotiation. In terms of the key stumbling block in the progression on renegotiation, this is to do with the Irish backstop. UK ministers are not happy with there being a potential hard boarder between Northern Ireland and the Republic of Ireland.

Bank of England to Enforce Patience Like the FOMC

Given all that is going on in the UK at present, the Bank of England is in no position to move on raising rates. The country is in an extremely delicate time at present, which could become much more sensitive. Any hike in interest rates could push the British economy over the edge. At this rate decision on Thursday, the general expectation would be to see a change in their stance.

The BOE may signal a slowdown in rate hike expectations over the coming years, given the potential no-deal scenario. Inflationary pressure in the UK have been fading, therefore there isn’t a need for them to rush and raise rates currently. Keeping in mind this potential shift to a more dovish stance from the central bank, further pressure could be added to GBP by the bears.

Technical Review – GBP/USD

GBP/USD daily chart.

Fundamental bias is setup in the favour of the bears, so key downside areas of support must be looked at. Firstly, via the daily chart view, there is a big support seen at around 1.3060-50 range. Should this be breached, then eyes again will be on the psychological 1.3000 mark to the downside. Further south, an area of demand can be seen tracking from 1.2950-00 range. In terms of resistance to the upside, this eyed at 1.3175, 7th November high.

Lastly, there is a big area of supply which is seen tracking from 1.3200-1.3300. Sellers are well camped within this whole price range, as seen most recently at the end of January, October and September 2018.

Featured image courtesy of Shutterstock.

Author:
Ken has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.