GBP/USD tested supply at 50-DMA level of 1.4240 on Friday before closing the day higher at 1.4196. The currency pair managed to cut through stiff resistance of hourly 200-MA in Europe and thus provided more power to the bulls. However, oil driven risk aversion seen today has pushed the spot back to hourly 200-MA seen today at 1.4164.
Sharp decline in oil is not welcome news for advanced nation central bankers aiming for annualized 2% inflation level. That also includes Bank of England (BOE), who is under pressure off late on account of Brexit fears and ultra easy stance adopted by the ECB. Add to that mix a fresh sell-off in oil and a sharp drop in inflation and what we have is a recipe for a rate cut. The talk of BOE rate hike in H1 has already gathered pace and a fresh drop in oil would only amplify calls for a rate cut.
Furthermore, weakness in oil also hurts the appeal of mining shares across the globe. This also makes the mining heavy FTSE a risk bet, thus adding to the bearish pressure around Sterling. Still, going by seasonality study, April is a good month for Pound since last ten years.
Technicals – Watch for a rebound from 1.4164
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Sterling’s rebound from 1.4164 (hourly 200-MA + hourly 50-MA + 23.6% of 1.5230-1.3835) would open doors for a re-test of 1.42 (hourly 100-MA). A violation there could yield 1.4229 (50-DMA).
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However, hourly RSI has dipped below 50.00, while daily RSI has remained below 50.00 despite recent uptick in Cable.
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Thus, upticks towards 50-dMA at 1.4229 could be met with fresh offers.
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On the downside, selling could gather pace once key support at 1.4164 is breached, in which case the bird could come down hard on next major support at 1.4079 (Jan 21 low).
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