The British pound currency has continued to hold above the 1.2300 level against the US dollar after a quick dip towards the 1.230 area after the buck strengthen in the aftermath of the debt ceiling resolution.
Sterling rebounded briefly last Friday as recent economic data is expected to encourage financial markets to maintain their sharply increased expectations of the Bank of England interest rate. Bank analysis predict three more hikes to come.
Friday’s UK retail sales report also had a positive reaction as it indicated that high street spending in Britain grew faster than expected by economists last month.
Going forward, more sterling gains could stem from stubborn inflation that was released earlier last week and thus resulting sharp increase in implicit expectations for the Bank of England’s rate.
Elliot wave analysis also show that a final correction may have happened and the GBPUSD pair is in the stages of a WXY play, with the final Y wave to create new highs towards 1.3000.
Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are growing more bearish despite the recent sharp price reversal.
With 45% of traders are currently bearish and it should be noted that this current sentiment reading is highlighting that sterling still has much scope to trade even lower.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, a clear range trade happening from a head and shoulders pattern, with the GBPUSD pair possible targeting 1.2000.
According to technical analysis, MACD divergence may also be reversing, with the overall size of the divergence extending down towards the 1.2000 level.
GBPUSD Medium-term Technical Analysis
According to the daily time frame it shows that that GBPUSD pair has undergone a classic Elliot wave correction, with a 1,2,3,4,5 wave higher, and ABC correction done.
The WXY sequence is now playing out, we could see a ramp towards the 1.3000 level, following this worrying drop towards 1.2300. Watch out for a big ramp higher if 1.2300 holds.
