GBP/USD posted a second consecutive day of losses on Tuesday to signal a near-term change in trend. However, volatility might slow as investors await the latest from the Bank of England.
GBP/USD continued to move lower on Tuesday, falling below a horizontal level at 1.2924 and posting a reversal candlestick pattern on a daily chart in the process.
The candlestick pattern suggests the pair might struggle to rally in the session ahead, putting the focus on key resistance at 1.2924.
GBP/USD has been trading sideways since late October after it became clear the UK was not going to be leaving the EU as planned on October 31. Since then, a weaker dollar has helped underpin the exchange rate.
But the dollar is catching a bid in the early week. The US dollar index (DXY) has been bought on every test of the 50-week moving average over the last three weeks. This time around has not been different, at least thus far. This could translate into a bit more downside for the pound to dollar exchange rate.
The big event this week for GBP/USD is the Bank of England meeting which takes place on Thursday. The BoE might share their thoughts on the upcoming election and how a further delay in Brexit will impact their monetary policy decisions.
GBP/USD is bouncing from its 50 moving average on a 4-hour chart. I think we might see the pair try and make another run for resistance at 1.2924 at this point.
There has not been enough evidence at this stage that the pair has resumed in its broader uptrend and it wouldn’t be surprising to see the pair fall into a narrowing range ahead of the BoE meeting.
If the pair drops below the 50 moving average, I expect it will lead to a retest of the bullish flag pattern that is in play. This falls near a horizontal level at 1.2846.
Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.