The British pound currency started to pull back from the 1.3800 handle against the US dollar as a raft of profit-taking and crossflows back into the EURGBP pair halted the recent sterling recovery.
Going into this week the GBPUSD pair still has plenty of scopes to head higher, as expectations remain extremely high that the Bank of England will increase interest at next Thursday’s policy meeting.
Most economists agree that with rapidly rising inflation the BoE will be forced to act and enforce a 0.25 percent increase, however, QE bond buying is likely to remain in force, which could temper sterling gains.
If the BoE act as expected, I think the GBPUSD pair could move into a higher trading range between the 1.4000 to 1.4500 level. Therefore, dips towards the 1.3700 area are probably for buying.
The economic docket is very light this week for the UK, meaning that the US will take the lead with jobs, GDP, and durable goods orders. The US dollar index will therefore feature heavily in this week’s directional bias for sterling.
According to the ActivTrader Market Sentiment tool traders are ultra-bearish towards sterling, which is a bullish contrarian signal alone. Currently, some 75 percent of traders are bearish towards the GBUSD pair.
Typically, when retail traders are overly bearish rallies can take hold. If bearish sentiment drops, then the GBPUSD pair may remain contained with the 1.3700 to 1.3800 price range.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, the GBPUSD pair is testing around the upper Bollinger Band indicator around the 1.3780 level, making this a key breakout or reversal area to watch this week.
The GBPUSD pair needs to hold above the 1.3780 area this week to maintain short-term upside moment. If bulls can manage to hold above last Friday’s swing low I expect a rally towards the 1.3900 to 1.4000 area in the short-term.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame that the GBPUSD pair has to move past the 1.3780 area this week in order to stage a breakout rally to towards the 1.4000 resistance area.
The Ichimoku cloud on the daily time frame clearly shows that the GBPUSD pair will be clear of all resistance once the 1.3800 area is broken. If the 1.3800 level is cleared I fully expect the 1.4000 to 1.4050 areas to be tested.
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