GBP/USD Fundamental Analysis – week of February 12, 2018

It was a very choppy week for the GBPUSD pair but it turned out to be an important week as well, for the pair as it moved lower and ended the week below the strong support at the 1.40 region which should now act as resistance. This break lower means that the bears are in control and this fall has now retraced most of the upmove that we have seen in this pair over the last few weeks.

GBPUSD Moves Lower Back Through 1.40

The week was dominated by the strength in the dollar that was seen all across the board. The pound had risen by over 800 pips over the last few weeks on the back of dollar weakness but we had been saying that most of this move had happened on low volume and hence susceptible for the move to be reversed at any point of time. This is what we saw last week when the pair fell lower on the first signs of dollar strength and this was enough for the pair to drop through the 1.40 region in a swift manner during the first half of the week.

The second half of the week saw the BOE assume focus as they came out with the rate announcement and rate statement. Not much was expected from them as the traders felt that they would not want to disturb status quo when the Brexit process is in full swing but the action from the other central banks might have led them to believe that they should not be left far behind and hence they indicated a rate hike in the near future in their statement. This hawkishness led the pair higher back through the 1.40 region but this move did not last long and by the end of the day, it was back below 1.40 and thats where it finished the week.

Looking ahead to the coming week, we have the retail sales, PPI and CPI data from the US and we have the CPI and the retail sales data from the UK as well. If the data from the US continues to be strong, that would raise anticipation of more than 3 rate hikes from the Fed during the course of the year and that would only add to the bullishness in the dollar placing the GBPUSD pair under some serious pressure once again. We believe that the pair is already in a bearish grip and any further bullishness from the dollar would lead the pair to move towards the 1.35 region in the short term, reversing all the gains that we had seen in the pair since the end of last year.