GBP Fundamental Forecast: Bearish
BOND MARKET CONTINUES TO SHINE: Powell’s commentary this week has been less than amusing, providing little to no guidance about the Federal Reserve’s future actions regarding a rapid increase in bond yields. This phenomenon has seen equities drop significantly as investors scramble to understand what this means regarding future inflation and the possibility of an adjustment to monetary policy, leaving the US Dollar as the main winner for the week.
GBP WEAKNESS REMAINS: all throughout the beginning of 2021 the British Pound was a strong outperformer in the FX space, reaching 3-year highs against the likes of the US Dollar and the Japanese Yen. This lead to the bullish run becoming far overstretched, causing a quick reversal in the last two weeks, with further downside still attainable in the short-run. There is a scarcity of UK economic data next week so momentum is likely to remain focused on the bond market and the reaction of Central Banks, which has overshadowed the vaccination rhetoric from the last few weeks.
GBP/USD: despite the recent sell-offs in the pound, GBP/USD is still hovering above the level seen at the beginning of February, and a recent fall below the lower bound of a rising trend suggests that corrective selling is not yet overdone. The Stochastic oscillator suggests that if we see some sideways consolidation to start the new week, further downside pressure may emerge before the pair is oversold. Short-term support may be seen at the 50-day moving average (1.3781) whilst resistance remains at the 1.40 mark before facing the upper bound of the uptrend at 1.4075.
GBP/USD Daily chart
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GBP/JPY: the pair has made two attempts to break the 150 level in the last week, but the pound seems to lack the bullish support needed to overcome such level, at least in the short-term. Bias continues to be tilted to the upside, but the stochastic has come off significantly since the peak attempted yesterday, so further retracements may be expected before the 150 mark is attacked again. Short-term support may arise between the 20 (149.52) and 50 (149.21) period moving averages on the four-hour chart, followed by the horizontal level at 148, where the 100 period SMA converges.
GBP/USD 4-hour Chart
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin