Market participants will be focused on significant data coming from the US, including the provisional GDP figures for the fourth quarter as well as to the consumer sentiment index for January. The Gross Domestic Product is expected to show that the US economy expanded at an annual rate of 3.3%, markedly slower than the previous quarter’s growth of 5.0%.
The pound managed to rebound from the key support level of 1.4950 and to reach the key resistance zone of 1.5220 – 1.5270. Given the current negative environment for the sterling, I am uncertain as to what could likely give further strength to the bulls and drive the price back above the aforementioned resistance zone. Therefore, I would expect some more dollar strength for the next couple of days.
On the daily chart a long-term downtrend remains in effect since last August. Prices have been making lower highs and lower lows and the price is below the 50-period SMA and the 200-period SMA on the daily and weekly timeframe.
Bearing the above in mind, if the price starts to move lower, having failed to break above the 1.5220 level, which includes the short-term falling trend line, then I would be looking for a more aggressive move lower towards the key support level of 1.4950 for a retest. Such a move could easily spark a run towards the ultimate price target of 1.4800, ahead of the BoE policy meeting due next week.
Technical studies support a further fall, since the MACD is moving below its trigger line and in a bearish territory. Furthermore the Relative Strength Index and the Stochastic, are both moving downwards below their mid-levels.
On the other hand, both descending trend lines have acted as resistances so the market clearly respects these trend lines and remains cautious each time the price is approaching them. In addition, the retracement has not actually be that huge so far though, so I will have to see more confirmation of the trend reversal before I become more bullish on the GBP/USD pair. If we do see a push higher, we should see more pressure on the descending trend line and the 1.5220 – 1.5270 zone, with a break of this prompting a move to the next descending trend line, roughly around the 1.5370 level.
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