GBPUSD: Skyrockets As BoE Leaves Monetary Policy Unchanged

The Great Britain Pound (GBP) rallied against the US Dollar (USD) last week, increasing the value of the GBP/USD to more than 1.3450 as the Bank of England (BoE) surprised financial markets by leaving the benchmark interest rate unchanged.  This has brought added volatility to stock markets and commodities as well, with silver prices now trading just below the $20 mark.

This was the case despite an early indication of a rate cut amid Brexit vote, so the resulting moves that have been seen in currencies have been relatively extreme. The technical bias for the Pound, however, remains bearish because of a Lower Low in the recent downside move. These are all factors that could make markets trading more difficult for investors in the coming weeks.

Forex Technical Analysis: GBP/USD

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As of this writing, the GBP/USD forex pair is trading near 1.3348. A hurdle may be noted around 1.3475, a major horizontal resistance area ahead of 1.3835, the low from 29 February which will now act as critical resistance level as demonstrated in the given below chart. A break and daily closing above the 1.3835 resistance area could incite renewed buying interest, validating a move towards the pre-Brexit levels.

On the downside, the pair is likely to find a support near 1.3105, the intraday low of today ahead of 1.2796, the swing low of the last major downside move and then 1.2700, the psychological number. A break and daily closing below 1.2796 will make sterling more vulnerable, putting the 1.0000 parity level in sight for long term traders.

Forex Strategies

Fundamentally, we expect short-term bullish momentum in the price of cable as BoE left the overnight cash rate unchanged. Eight out of the nine Monetary Policy Committee (MPC) members called for steady monetary policy despite the landmark Brexit vote last month.

Mark Carney, the head of Britain’s Central Bank had warned for a rate cut last month which consequently triggered strong selling pressure in GBP/USD.  Considering the overall technical and fundamental outlook, selling the pair on rallies near abovementioned resistance levels still appears to be a good strategy in short to medium term.

About the Author
Richard Cox is a university teacher in international trade and finance. Lessons in macroeconomics and price behavior in equity markets. Trade ideas are generally suggestive of time horizons of one to six months.

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