GBP/USD pair tested area around 1.4450-1.4460 multiple times on Wednesday before finally dropping below key support of 1.4368 (38.2% of 1.5230-1.3835). The bird extended losses in Asia to a low of 1.4328 levels before recovering to 1.4344 levels.
Fed speak yesterday was once again confusing and there seems to be a consensus among policymakers that they need to “confuse markets, if they cannot convince”. Fed began the year on a hawkish note, then switched gears and turned dovish at March meeting, followed by a joint effort to talk up rate hike bets. This again was followed by dovish Yellen earlier this week.
Carney to talk up Brexit fears?
Earlier this week, Bank of England warned that Brexit related uncertainty could cause credit crunch and lead to a sharp drop in Sterling. Governor Carney is due to speak. A month ago, a paper released by Cabinet office also warned that Brexit would lead to a ‘decade of uncertainty’.
This kind of statements from pro-EU groups are to be expected as we edge closer to June 23 referendum as it is an indirect attempt to convince Britons not to vote in favor of Brexit. BOE refrained from putting forward its analysis on Brexit last month, but off late it has been warning about potential negative impact of Brexit. Hence, Carney could fire few more warning shots today, in which Pound could tumble through key support levels. Carney’s speech comes ahead of UK GDP, hence there is a risk traders could turn a blind eye on these numbers.
Technicals – Sideways to bullish bias
Sterling’s retreat from the NY session high of 1.4459 following a rebound from last week’s low of 1.4057 indicates a temporary loss of bullish momentum and points to a possibility of sideways to mildly bullish action today.
Recovery from 1.4342 followed by a break above 1.4368 (38.2% of 1.5230-1.3835) would end up sending the pair back to 1.4405 - 1.4459. A break above 1.4459 would see the pair test 1.4475 (inverse head and shoulder level).
On the downside, only a daily close below 50-DMA of 1.4279 would signal a temporary top has been made.
Caution is advised as Carney’s comments on Brexit could trigger a wave of selling.
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