GBP/USD Daily Forecast – Sterling Retests Technical Breakout Point

GBP/USD initially showed upward momentum yesterday but rolled over on the back of a strong dollar and has since declined to a one-week low. The pair is currently testing support which could trigger a turn higher.

The week ahead is expected to be a busy one and volatility is likely to be elevated. The equity markets have already seen a sharp rise in volatility as the rising threat of the Coronavirus has triggered a shift to risk aversion. Equities stand to see more volatility as most of the top-traded companies will report earnings this week.

GBP/USD is less susceptible to shifts in risk sentiment but other events will influence trading in the pair. This is the last week of the month and often volatility is seen on the back of positioning adjustments into month-end.But more importantly, investors will look to the Bank of England meeting on Thursday in anticipation of a possible rate cut. Data last week from the UK was positive and the markets have since reduced the chance of a rate reduction this week to roughly 50%, down from around 70% in the middle of the month.

Later in the North American session, the latest durable goods orders and consumer confidence figures will be released from the US. As well, Fed member Williams is scheduled to speak.

Technical Analysis

GBP/USD is on pace to post a fourth consecutive day of declines, although important support has come into play.

The pair is testing to the upper bound of a previously broken downtrend channel. Some may view the channel as a bullish flag pattern. The channel had contained price action since the start of the year ahead of last week’s bullish break.

A possible scenario for a range to develop ahead of the BoE meeting as investors will want to see if policymakers act. In this context, buyers might look to defend dips towards 1.3000 while sellers look to contain rallies towards 1.3100.

Bottom Line

• GBP/USD has steadily declined since Friday’s release of UK PMI data.
• Support from a previously broken trend channel is in play.
• A range might develop as investors await the BoE meeting on Thursday.