British Pound / US Dollar: Weekly Forecast
GBP/USD: Test of highs, sentiment behavior and strong range
The GBP/USD pair provided speculators with a strong test of the technical range last week as financial firms battled over interest rate forecasts and economic data.
The GBP/USD exchange rate entered the weekend near the 1.21650 level, which is lower than at the end of last week. However, GBP/USD rallied to the 1.23200 area on Friday before facing headwinds. At the start of last week’s trading, GBP/USD reached a level of 1.23445 on Monday, December 15.
Some bulls may be wondering what went wrong with the GBP/USD trend. However, this question is probably the wrong one, as the technical range for the pair has actually been quite strong, and after bottoming below the 1.21100 level, GBP/USD has recovered nicely, indicating that it has the ability to remain elevated for medium-term prices when looking at the quarterly chart.
GBP/USD’s strong rally on Friday was driven by concerns over US inflation data
After rallying on Friday and nearing the highs reached early last week, GBP/USD has taken a sudden bearish turn. Technically, the bearish move can be interpreted as a reaction to the belief that GBP/USD is overbought and that it is still difficult to stay in the range above 1.23000. Traders can also take a different perspective, as PPI data from the United States came in slightly higher than expected, causing some selling in GBP/USD.
- Next Tuesday, the US will release more inflation data via CPI statistics.
- On Wednesday, the US central bank is expected to raise the federal funds rate by an additional 0.50% to 4.50%.
- Next Thursday, the Bank of England will announce its official interest rate and borrowing costs are expected to increase by 0.50% to 3.50%.
GBP/USD will see a full and volatile week of trading as financial houses react.
With a lot of central bank activity planned this week, speculators should be cautious in following the GBP/USD pair. The pair may continue to show a fairly calm price range, but there will certainly be moments of brisk trading as financial firms react and place their funds. The larger rally in the pair over the last 2 1/2 months has been solid and it may be best for traders not to see any surprises from the US Federal Reserve and the Bank of England now.
Inflation remains a global problem, but some analysts believe there are signs that prices are starting to ease. If the Bank of America and the Bank of England show they are in line and give a more pessimistic outlook late next week on future interest rates, this could help GBP/USD hold its values perhaps with a gradual increase in the medium term.
GBP/USD Weekly Forecast:
Speculative price range for GBP/USD is 1.21050 to 1.23950
GBP/USD has shown the ability to raise its support level on a weekly basis since early October with a pretty good showing. However, the upward price action has been brisk and last week’s results may signal the need for a pause. The area of consolidation should be monitored. With upcoming mandates and statements from the US and UK central banks on Wednesday and Thursday, traders should be cautious. If GBP/USD breaks below 1.22000, there may be a legitimate test of 1.21800, but there appears to be strong technical support near 1.21400.
Bulls looking to make a higher low as well as day traders could be sorely tested in the coming days. Traders may want to be buyers when there are slight reversals to the downside and then go long. Although GBP/USD has signs that it could move higher, financial firms could remain nervous and lead to volatile trading conditions in the first two days of this week.
If all central bank forecasts are confirmed later this week, GBP/USD could break 1.23000 and hold that level. Traders must use full risk management, They should also keep in mind that trading volume is likely to be high – as financial institutions begin maneuvering their positions before financial markets begin to slow due to the fast approaching holiday season.
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