- The British Pound made new lows last week and momentum might be building
- The Bank of England is anticipated to lift rates later this week by 25 basis points
- Sterling is staring at some untested support levels. Will GBP/USD find firmer footing?
The British Pound has recently experienced a decline, reaching its lowest point in the last three months, just as investors eagerly await the upcoming monetary policy decision from the Bank of England scheduled for this Thursday. In the interest rate markets, there is a notable consensus, with approximately an 80% probability assigned to a 25 basis point (bp) interest rate hike. Let’s read more about GBP/USD below…
If this materializes, it would push the cash rate to 5.50%, reaching its highest level since the period preceding the global financial crisis in 2008. This anticipation of higher interest rates is having a significant impact on the Pound’s value, contributing to its recent decline in the forex market.
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— addi.GOLD (@Addi9Bailey) September 18, 2023
If the bank surprises markets with anything other than 25 bp of tightening, Sterling volatility might kick off.
On Friday, GBP/USD reached a low of 1.2379 but closed the week near that level without actually testing the potential support at the early June low of 1.2369.
GBP/USD has displayed stability on Monday, but there could be vulnerability in its position, particularly after closing below the 200-day simple moving average (SMA).
The 200-day SMA may act as a resistance level, potentially hindering upward movements before reaching critical breakpoints at 1.2445, 1.2550, and 1.2620. Further upward progress might face resistance from previous peaks at 1.2746, 1.2800, and 1.2819.
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Resistance could also be near the high at the psychological level of 1.3000, which concurs with a historical breakpoint.
Further up, the 16-month high of 1.3142 is also just below some breakpoints in the 1.3150 – 1.3160 area and may offer a resistance zone.
A bearish triple moving average (TMA) formation requires the following conditions: the price should be situated below the short-term SMA, the short-term SMA should be positioned below the medium-term SMA, and the medium-term SMA should be located below the long-term SMA. Furthermore, all these SMAs should demonstrate a negative gradient.
When looking at any combination of the 10-, 21-, 55- and 100-day SMAs, the criteria for a TMA have been met and might suggest that bearish momentum is evolving.
Support could be at the previous lows and breakpoints at 1.2369, 1.2308, 1.2270, 1.2148, 1.2011 and 1.1804.
EUR/GBP has been engaged in a range-bound trading pattern for the past four months, oscillating within the confines of 0.8493 and 0.8701.
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— Chirpy Chet (@ChirpyChet) September 18, 2023
Notably, the 10-day, 21-day, 34-day, 55-day, and 100-day SMAs have all converged within a narrow range, specifically between 0.8572 and 0.8607. This clustering of moving averages might signal a prevailing lack of clear direction for EUR/GBP.
If the price has a meaningful move away from either side of that range a breakout trade opportunity may evolve. To learn more about breakout trading, click on the banner below.
Potential support levels could be identified at previous lows and breakpoints, including 0.8524, 0.8504, 0.8493, 0.8486, and 0.8481.
On the upside, the 100-day SMA could play a pivotal role in determining the direction. It underwent testing on two occasions in July and August, and during last week, it experienced brief breaches a few times before ultimately retracting back below this moving average.
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A sustained move above it could see bullish momentum evolve.
Further up, resistance might be at the previous peaks at 0.8630, 0.8669, 0.8701 and 0.8735.