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British Pound Weekly Forecast: GBP/USD Could Slump to Multi-Decade Lows

British Pound Weekly Forecast: GBP/USD Could Slump to Multi-Decade Lows

Warren Venketas, Analyst

POUND STERLING TALKING POINTS

  • Poor UK economic data aids sterling decline.
  • Hawkish Fed adds to GBP woes.
  • March 2020 swing lows a thing of the past?
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GBP/USD FUNDAMENTAL BACKDROP

The pound had a torrid week last week as we look ahead to a central bank filled bonanza ahead of us. The Bank of England (BoE). Has a tough task ahead but at least the central bank has had a week more to analyze the current situation after the prior meeting date was postponed sue to the Queens unfortunate death.

Money markets are currently pricing in roughly 50% chance of either a 50bps or 75bps interest rate hike but after reviewing last week’s UK economic data I tend to favor the former. With GBP so weak at the present moment, the 50bps hike may add to further downside and heighten inflationary pressures for the UK. In addition, the Fed will be looking to continue its aggressive path towards quelling inflation so it will be interesting to see whether or not the BoE reacts to the Fed particularly if they choose to be ultra-hawkish and front load rates by 100bps.

GBP/USD ECONOMIC CALENDAR

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Source: DailyFX Economic Calendar

TECHNICAL ANALYSIS

GBP/USD DAILY CHART

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Chart prepared by Warren Venketas, IG

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GBP/USD price action shows penetration below the March 2020 swing low at 1.1410, now opening up the possibility for subsequent support zones. The Relative Strength Index (RSI) may shows higher lows (green) while cable prints lower lows. This phenomenon is known as bullish divergence and can lead to a reversal to the upside. Fundamentals are not in line with this outlook just yet, particularly with the UK heading into the winter months in the midst of an energy crisis.

A candle close above the 1.1410 swing low may prompt bulls to re-enter thus keeping the pound afloat ahead of the BoE meeting.

Key resistance levels:

  • 1.1600
  • 1.1410

Key support levels:

  • 1.1300

BEARISH IG CLIENT SENTIMENT

IG Client Sentiment Data (IGCS) shows retail traders are currently LONG on GBP/USD, with 81% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment resulting in a short-term downside bias.

Contact and followWarrenon Twitter:@WVenketas

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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