The British pound currency has continued to fall against the US dollar after the recent CPI report from the United States economy and expectations the Fed will implement a 75 or 100 basis point rate hike.
Sterling has since moved to a new 2022 trading low and the breakdown of the yearly low hints at more pain ahead. I think we about to see another big down move this week.
Technical analysis highlights a price path towards the 1.1000 level over the coming weeks. It also appears that the Bank of England raising rates will not stop the bleeding in GBPUSD.
Commerz Bank has an equally bearish view on sterling. The banks analysts note that “The FX market reacted sensitively to the publication of the Retail Sales on Friday morning and sterling came under downside pressure. That is likely to reflect market concerns that the BoE will not get inflation under control that quickly. Concerns about that are likely to continue ahead of the BoE meeting, putting pressure on sterling.”
And finally, the banks analysts note that “It remains to be seen whether the BoE will succeed in providing support for sterling with the help of a courageous rate hike and hawkish comments. I have to admit that I find that difficult to believe at the moment.”
Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are growing more bullish by around 5 percent this week, despite the recent sharp price drop.
With 75% 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, a bearish head and shoulders pattern has been activated and the patter holds a 300-point downside price target.
According to the overall size of the pattern, and assuming we trade below the 1.1400 level, I would expect that we could soon see a move towards the 1.1100 level.
GBPUSD Medium-term Technical Analysis
According to the daily time frame it shows that that GBPUSD pair is trapped within a descending broadening wedge pattern between the 1.2000 and 1.1200 level.
According to the size of the bullish price pattern an 800-point move could take place once a break from the pattern takes place. As mentioned, these patterns are typically bullish.