The British pound currency continues to trade around the 1.3200 level again as traders digest the latest Bank of England rate and the latest talk surrounding the Ukraine conflict.
Not surprisingly, sterling is catching a bid after the BoE increased rates for the third time in four months as the central bank attempts to calm the rise in the cost of living inside the United Kingdom.
The rise from 0.5% to 0.75% means rates are now at their highest level since March 2020, when Covid lockdowns began. In the UK, energy bills and food costs are increasing and there is concern the war in Ukraine will push prices up further.
The Bank warned yesterday that inflation may reach 8% and possibly higher, in the coming months, and noted that the invasion of Ukraine by Russia “has led to further large increases in energy and other commodity prices including food prices.
In terms of sterling, it is difficult for foresee how it may react, as both the FED and Bank of England continue to raise rates. Unlike the ECB, and BoJ, there is no clear winner between the UK and USA central banks.
Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are currently very bullish towards sterling. Which is a worry.
With 70% of traders turning bullish, it should be noted that this current sentiment reading is generally bearish, as sentiment traders typically look to fade retail biases in this metric.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, technical analysis clearly shows that that GBPUSD pair is still struggling to make new higher highs, after rebounding sharply from the 1.3000 price area.
The Momentum indicator shows not clear price divergence extending up towards the 1.3490 level. However, momentum has been strong during the recovery. A break above the 1.3200 level is needed for an attack towards the 1.3400 level.
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GBPUSD Medium-term Technical Analysis
According to the weekly time frame, the GBPUSD pair is trading around its 200-week moving average, which is a key technical metric that defines the long-term term trend.
The MACD indicator is also showing that the GBPUSD pair is showing huge amounts of bearish price divergence down towards at least the 1.2600 level, hence why I think more losses are possible.
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