GBP/USD: Cable Support in-Focus After BoE Bounce
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GBP/USD Talking Points:
- The British Pound continued to slide into yesterday’s BoE rate decision, which was the first ‘Super Thursday’ meeting at the bank in 2019. As the bank cut growth forecasts while Governor, Mark Carney noted that the ‘Fog of Brexit’ was acting as a constraint, GBP/USD made a fast approach towards the 1.2828-1.2850 support zone. But prices quickly reversed after Mr. Carney noted that clarity on Brexit could bring upside, and this points to the extremely low expectations that markets have for resolution around Brexit.
- Next week’s economic calendar brings UK CPI on Wednesday morning, and there remains a large point of contention in Brexit negotiations around the Irish backstop.
- DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.
Do you want to see how retail traders are currently trading GBP/USD? Check out our IG Client Sentiment Indicator.
GBP/USD Breaks Down, Bounces on BoE ‘Super Thursday’
The month of January saw considerable strength show up in the British Pound as the currency recovered from a New Year spill to rally for the bulk of last month. But after prices perched above the 1.3200 level, that bullish motivation began to wane and as looked at earlier this week, a pullback began to develop that saw prices sink back-below the 1.3000 level.
That weakness continued through the initial portion of yesterday’s Bank of England rate decision. This was the first ‘Super Thursday’ event of the year at the BoE, and this means that an updated set of forecasts was unveiled to go along with the rate decision and the accompanying press conference. The BoE cut growth forecasts, and this hastened the decline; and as Mr. Carney noted that the ‘Fog of Brexit’ was acting as a constraint, prices pushed all the way down towards the 1.2828-1.2850 support zone that was looked at on Wednesday.
But Mr. Carney also noted that clarity on Brexit could bring upside, and in short order prices in GBP/USD had started to reverse from that sell-off. The pair made a fast approach at the 1.3000 psychological level, falling just a few pips short before prices settled at the 1.2920 Fibonacci level.
GBP/USD Hourly Price Chart: Support Settles Around 1.2920 After BoE Bounce
Chart prepared by James Stanley
GBP/USD Strategy for Next Week
Given the continued overhang of Brexit with a considerable amount of uncertainty for how the divorce may actually happen, it can remain as difficult to prognosticate sustainable, long-term trends in the pair. This means that traders will likely look to relegate exposure in GBP to shorter-term themes, looking to work with positions as taken from support/resistance levels in the effort of implementing favorable risk-reward ratios.
On the support side of the matter, the zone that runs from 1.2828-1.2850 remains of interest; and below that is another area that runs from the 1.2671 level up to the 61.8% Fibonacci retracement of the January bullish move at 1.2735. On the resistance side of the pair, the 1.3000 level remains as the primary point-of-contention, and this can be connected up to the 1.3034 Fibonacci level to create a zone of potential resistance. A little-higher on the chart is the area from 1.3106-1.3117, with the latter of those prices functioning as the 38.2% retracement of the ‘Brexit move’ in the pair.
GBP/USD Four-Hour Price Chart
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q4 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.