The British pound went into retreat against the US dollar currency, as the greenback suddenly came back into demand amongst traders on the April monthly close on the foreign exchange market last Friday.
Sterling now faces a pivotal week ahead after a number of failed upsides attempts to get the 1.4000 level last week. It appears that the GBPUSD pair may need to head lower before it starts to head higher again.
Looking at the technicals for the GBPUSD pair, the 1.3800 level appears to be an important line-in-the-sand for sterling. Due to numerous technical metrics converging in this area, it probably going to be the make-or-break area for sterling this week, where the pair will either breakdown or reverse sharply.
On the fundamental front, traders will also pay close attention to the Bank of England policy decision is going to be key this week. Many analysts are speculating that the central bank is going to reduce its bond buying purchases this week.
If this does happen, then sterling is probably going to rally hard on the news, similar to how the Canadian dollar has recently down after the Bank of Canada cut its pandemic bond buying scheme. The fact that a divergence between the Bank of England and the Federal Reserve could be about to take place may be very bullish for the pound.
The British economy appears to be faring better after the pandemic slump, with many retailers and restaurants reopening, and retail sales rising sharply. Last month’s PMI manufacturing number was its highest since 2013.
According to the ActivTrader Market Sentiment tool some 61 percent of traders remain bullish towards the GBUSD pair right now. Bullish sentiment probably needs to neutralize or turn bearish again before the GBPUSD pair starts to rally again.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, a technical retest of a falling wedge pattern could be about to take place. The key former breakout zone is found around the 1.3700 technical support zone.
Any weakness below the 1.3700 support zone this week and the GBPUSD pair could come off sharply, with the 1.3650 and 1.3550 areas key support below.
It should also be noted that the GBPUSD pair could explode to the upside if the pair moves above the 1.4010 level this week. A rally towards the 1.4250 level could easily take place if the 1.4010 level is broken.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame the GBPUSD pair major rising trendline support comes in around the 1.3800 support level this week. This is the key medium-term swing zone for the GBPUSD pair.
The bigger picture still shows that the GBPUSD pair is trading above the neckline of a large, inverted head and shoulders pattern while the price holds above the 1.3550 support zone. This pattern holds an upside target of 1,500 points.
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