GBPUSD Consolidates On a Drop of Volatility and Lack of a Catalyst

by on April 28, 2014 4:37 am BST

GBPUSD has gone virtually nowhere after pushing to a new four-and-a-half-year high of 1.6841. The pair has remained range bound between the new high and 1.6761 due to a drop in volatility and a lack of a catalyst to send it in either direction. Sterling was unable to capitalize on the dollar’s decline as risk sentiment wanes and the greenback continues to sell-off.

Cable’s volatility fell to a 16-month low with price action trading within a minuscule .3 percent from the recently made high. Oliver Korber, a derivatives strategist at Societe Generale, said the “volatility has really collapsed since mid-February.” Sterling has gained just under nine percent against the greenback, and it is likely the move in anticipation to higher interest rates got ahead of itself.

The UK’s economy is expanding, and economists are expecting gross domestic product to increase from .7 percent to .9 percent on next week’s release. The International Monetary Fund (IMF) even increased their economic forecast for the United Kingdom this month, but traders have been eagerly awaiting a rate increase.

The Bank of England (BoE) will wait for spare capacity to dissipate before rising rates. The slack in the inflation rate is also holding the probability for a rate increase at bay. This could pose for a negative sentiment build up for GBPUSD and cause a pullback to more reasonable levels.

The inability to reach a new high will likely trigger a retracement. Key price action support levels will be found at 1.6725 and 1.6655. Look for GBPUSD to begin to trade lower until Tuesday’s gross domestic product data. If data meets or beats expectations, GBPUSD will likely test the multi-year highs.

1D Chart of GBPUSD

1D Chart of GBPUSD