GBPUSD Oversold Amid Rumors; It Will Strengthen If Fell too far, too fast

by on August 19, 2014 10:52 am BST

GBPUSD declined to test a 6-year high, Barclays Plc says, as futures traders increase bets the UK currency will strengthen after falling too far, too fast.

The pound reached its most oversold level since March 2013 this month as it tumbled 1 percent in August, the worst performance among major currencies. Sterling’s decline prompted it to breach its 200-day moving average for the first time since September, after Bank of England Governor Mark Carney said policy makers will focus on “weak” wage growth in gauging when to raise interest rates. It has tumbled 3.2 percent since touching $1.7192 on July 15, its highest level since October 2008.

Despite the warning on rates, traders still see a 23 percent chance the BOE will lift borrowing costs this year, compared with 1 percent odds for the U.S. Federal Reserve, overnight-index swaps data show. The pound advanced 0.2 percent yesterday, the most in two weeks, after Carney told the Sunday Times newspaper that officials may lift borrowing costs before seeing a recovery in wages. It plunged 0.5 percent today as inflation slowed more than economists forecast.

Swaps traders predict the BOE will raise its benchmark by 55 basis points over the next 12 months from 0.5 percent, compared with 21 basis points of increases to the Fed’s zero to 0.25 percent target rate, according to Credit Suisse AG indexes. A basis point is 0.01 percentage point.

After finding support at the 200-day moving average, currently at $1.6674, the next crucial test will be the 60-day gauge at $1.6937, according to Tokyo-based Gaitame.com Research Institute Ltd.

GBPUSD Pivot Levels Pivot Woodie Fibonacci
Resistance 3 1.6761 1.6759 1.6749
Resistance 2 1.6749 1.6748 1.674
Resistance 1 1.6736 1.6734 1.6734
Pivot 1.6724 1.6723 1.6724
Support 1 1.6711 1.6709 1.6714
Support 2 1.6699 1.6698 1.6708
Support 3 1.6686 1.6684 1.6699