GBP/USD, BRITISH POUND – Technical Outlook:
- GBP/USD continues to be in a range from a short-term perspective.
- It is now approaching the lower end of the range, which is crucial support.
- What is the outlook and what are the key levels to watch?
Recommended by Manish Jaradi
How to Trade GBP/USD
GBP/USD SHORT-TERM TECHNICAL FORECAST – NEUTRAL
GBP/USD is nearing key technical support that could determine the trend for the next few weeks, possibly a few months.
A minor double top triggered on intraday charts points to the possibility of a drop to 1.1840 (see the previous update highlighting the case), roughly coinciding with the 200-day moving average, the Ichimoku cloud cover, and the October high of 1.1645. This support is strong and given the evolving trend on the weekly chart, the chances of the support area of 1.1645-1.1840 holding are high.
Price Facts, Sentiment, Narrative
The risk of course is that a break below would trigger a minor double top (the December and January highs), potentially opening the way toward 1.1250. Moreover, it could negate the possibility of a bullish reverse head & shoulders pattern unfolding on the weekly charts (see the January 20 update).
GBP/USD Daily Chart
Chart Created Using TradingView
For now, though, the Plus Directional Movement Index (DMI) and Minus DMI remain below 25, pointing to range continued range conditions (seethe end of November update hereandmid-January here). Furthermore, the relative monetary policy outlook supports a range view with perhaps a softer GBP/USD bias. Last week, the Bank of England (BOE) hiked interest rates by 50 basis points, while the US Federal Reserve raised rates by 25 basis points, as widely expected.
GBP/USD Weekly Chart
Chart Created Using TradingView
The BOE scaled back some of its previous bleak economic forecasts and acknowledged easing inflation but indicated in its statement that smaller hikes and an eventual end to the tightening cycle may be in the cards in coming meetings. The Fed acknowledged early signs of disinflation, but Chair Powell said the central bank could conduct a few more rate hikes to bring down inflation to its target. On balance, the BOE hinted rates are near peak, while the Fed stopped short of indicating a pause, marginally weighing on GBP/USD.
— Written by Manish Jaradi, Strategist for DailyFX.com
