The British pound currency has continued to head lower after hitting a key technical target close to the 1.1500 resistance level against the US dollar last week.
In reaction to the latest nonfarm payrolls job report the GBPUSD pair has continued to move back towards the 1.1000 level, marking a near 500-point decline from the highs of the month.
A reaction is also underway to the volatility in the UK bond market. The recent U-turn by the UK Chancellor in regard to high income tax relief caused the initial recovery.
More volatility should be expected in the GBPUSD pair this week on the back off the US CPI report, which is likely to set the tone for the trading week.
Technical analysis really highlights the important of the 1.1150 area. This is a particularly important price area that sterling needs to overcome in order to stabilize this week.
Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are yet more bullish, despite the recent sharp price drop.
With 60% of traders currently bullish, it should be noted that this current sentiment reading is significant enough to be an extreme reading, as traders are now basically increasingly bullish bets. This is still a very bearish sign for sterling.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, technical analysis clearly shows that that GBPUSD pair has met the 100 percent price target of an important Fibonacci extension sequence.
When the target of a Fibonacci sequence is met a large pullback often happens. The only chance bulls has is if the 1.1500 level is breached this week.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame, the GBPUSD pair is moving towards the bottom of a falling expanding wedge pattern. These patterns are known to be very bullish reversal patterns.
The pattern has already met its downside target, so we could now see a reversal back towards the top of the pattern or another big stab lower towards the 1.0800 level.
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