GBPUSD traded lower all five sessions last week after hitting important resistance and falling after a series of poor data. Price action broke to the upside strongly, punching through 1.6760 resistance and tested 1.6820. However, the Sterling-dollar seen a hard rejection, and then the pair began its decent lower.
Speculators have been worrying about the Bank of England (BoE) raising the benchmark interest rate, but traders got a shock when the unemployment rate ticked up to 7.2 percent despite losing over 27K from the unemployment pool. The unemployment rate has been a key component to higher rates, although BoE Governor Mark Carney said it is not a guarantee. “We will not take risks with the recovery,” said Carney. The focus has been on stabilizing the economy before increasing rates, which could have a negative impact is the timing is off.
Carney said “we are going to set the path of monetary policy in a way that ensures that we see sustainable growth in jobs and incomes and in spending,” during an interview with an Australian newspaper. The focus will be to improve the current forward guidance framework to ensure proper communication between officials and markets. According to Ben Broadbent, member of the Monetary Policy Committee (MPC), said there is no date on when rate could rise, but “when it does, the rise is likely to be gradual and limited.”
Price action of the daily chart left traders with a serious of dojis as it broke through support at 1.6665 and closed the week at 1.6614. There could be a sentiment shift in the Sterling as traders await for the potential for higher interest rates while receiving shaky data from the United Kingdom. In the last two weeks, GBPUSD has gone from 1.6251 to the new highs of 1.6821. The decline in GBPUSD is likely due to profit taking, but price action could see 1.6570 within the next couple sessions. The next line of support is joining the 20 EMA, with additional support found at 1.6462.
A pullback would test former support, now resistance, at 1.6665.
This week is rather quiet for the Sterling except for the secondary prelim GDP figures on Wednesday. Analysts forecast a .7 percent expansion in economic growth.