GBP/USD: Upside bias intact, but trade confrontations could hurt Pound
|- The technical bias remains bullish.
- But, escalating trade tensions and risk aversion could hurt GBP.
GBP/USD fell from 1.4218 to 1.4076 yesterday, creating an inverted bearish hammer on the daily chart even though the odds of a Bank of England (BOE) rate hike in May increased to 72 percent from pre-BOE level of 66%.
Kathy Lien from BK Asset Management believes the lack of major changes in the policy statement and BOE's concerns that protectionism and Brexit may hurt the UK economy, pushed the pound lower.
That said, the ascending 5-day moving average (MA), 10-day MA and 21-day MA and bull flag breakout witnessed earlier this month, indicates the bulls remain in control and cable could revisit 1.4345 (Jan. 25 high) soon.
However, GBP ranks last on the list of the anti-risk currencies, courtesy of Brexit uncertainty and UK's current account deficit. Hence, escalating US-China trade tensions and the resulting risk aversion could push the GBP lower against the greenback.
As of writing, GBP/USD is trading 0.15 percent higher at 1.4118. The European equities are likely to open on a negative note, tracking the losses in the Asian stocks. Consequently, GBP/USD may surrender gains. The trade war fears will likely overshadow the BOE's quarterly bulletin release (due at 12:00 GMT). Meanwhile, BOE member Vlieghe's speech due at 12:30 GMT could influence the British Pound.
GBP/USD Technical Levels
A close above 1.4218 (yesterday's high) would signal resumption of the rally and open doors for 1.4278 (Feb. 1 high) and 1.4345 (Jan. 25 high). On the other hand, a break below 1.4075 (5-day moving average) could yield a pullback to 1.40 (psychological support) and 1.3964 (ascending 50-day moving average).
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