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British Pound May Fall Further on Big Week Ahead

By , Quantitative Strategist
21 February 2014 00:56 GMT
British_Pound_May_Fall_Further_on_Big_Week_Ahead_body_Picture_1.png, British Pound May Fall Further on Big Week Ahead

Fundamental Forecast for the British Pound: Bearish

The British Pound went from market leader to laggard, falling for five-consecutive trading days just after setting fresh multi-year highs the week before. The coming week’s UK economic data could determine whether this is the start of a larger reversal or a minor correction within the much larger uptrend.

Any surprises out of Q4 UK Gross Domestic Product growth revisions could spark important British Pound volatility. Analysts and economists polled by Bloomberg News predict that the Office of National Statistics will report the UK economy grew at 0.7 percent in Q4, consistent with the Advanced readings delivered last month. Yet there’s question whether recent positive surprises in UK economic data point to an improved figure; the British Pound would likely bounce on any positive surprises.

It will otherwise be a quiet week of economic event risk out of Europe’s second-largest economy, and the GBP may need to see disappointments out of EU, Swiss, US, and Canadian GDP figures to continue onto fresh peaks. Our Senior Technical Strategist highlights the fact that the GBPUSD formed a potentially significant weekly key reversal. The fact that it has fallen so consistently after registering fresh multi-year highs warns that the exchange rate could soon turn lower.

Forex trader sentiment recently matched records on the GBPUSD, and that in itself warns of a potential price extreme. The clear caveat is that major reversals are only clear in hindsight, and trying to catch major tops and bottoms is very risky.

If we see the British Pound break key technical levels versus the Dollar and other counterparts, it could cement the case for selling into GBPUSD losses. Of course a break to fresh multi-year peaks would negate calls for a major reversal. Yet it’s difficult to ignore the warning signs, and it’s shaping up to be a big week for the UK currency. - DR

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21 February 2014 00:56 GMT