GBP/USD: Steeper Decline Or Short Squeeze?

Dear Traders,

Today will be an important day for the British pound and sterling traders seem to be waiting in their starting blocks. The Bank of England will announce its policy decision and release the minutes of its meeting at 12:00 GMT. While the central bank is expected to keep monetary policy unchanged, traders and analysts pushed back their expectations of a BoE liftoff. The market is currently pricing in a very dovish BoE tightening cycle, not expecting the central bank to raise rates until well into 2017. These speculations are manifested in the pound’s sustained downtrend. But we have learned from past experience, that any surprises can quickly alter the market’s sentiment which is why investors were caught on the wrong foot sometimes. Some currency traders even stress the idea that sterling’s’ weakness looks considerably overdone. It is worth noting that the depreciation of the British pound should suit policy makers and could have a positive impact on inflation. Any shifts away from the central bank’s dovish monetary policy stance could trigger a strong rebound in the GBP/USD.

However, following the motto “the trend is your friend”, traders should, for the time being, prefer to sell any rallies towards lower targets.

GBP/USD

Taking a look at the weekly chart, it is tempting to focus on a steeper decline, targeting at the 1.40-barrier. But first, we will pay attention to the 1.43-level and GBP will need to break significantly below that level in order to reveal fresh bearish momentum towards the next support at 1.4230. Current resistances are seen at 1.4530, 1.46 and 1.4640.

Chart_GBP_USD_Weekly_snapshot14.1.16

The euro bounce back from its 1.08-support and started a small relief rally against the U.S. dollar. The next hurdle will be at 1.09 and it remains to be seen whether the currency pair will be able to extend gains towards 1.0940 and 1.0980. There are no major important economic reports due for release today. The German GDP report, due for release at 9:00 GMT, may have some impact on the euro. However, the euro remains to trade between 1.10 and 1.08 and as long as there is no breakout above or below these zones, traders will have to wait and focus on the current trading range.

Fed President Bullard is scheduled to speak at 13:30 GMT. At the same time, U.S. Continuing and Initial Jobless Claims are due for release.

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