GBP/USD Forecast: Oversold conditions improve outlook after the BOE's blow

The labor market is turning – warned a former hawk at the Bank of England as he voted for a rate cut. The potent combination of two voters for a rate cut, warnings about the labor market – still one of the stronger parts of the economy – and the general dovish tone, all sent the pound down.

Mark Carney, Governor of the BOE, emphasized that growth has slowed both in the UK and abroad, saying that interest rates may fall if the expansion remains weak.

See BOE Analysis: Carney catches up with cloudy reality, GBP/USD support removed

The Canadian central banker is set to retire at the end of the year but may extend his tenure. His predecessor will be named after the elections.

Back from the BOE and to the elections

The latest opinion polls toward the December 12 elections continue showing a 12-point lead for the Conservatives over Labour, an outlook that fails to guarantee an absolute majority for Prime Minister Boris Johnson. Both main parties have been warned about their grandiose spending plans in the run-up to the elections.

These parties have also seen various MPs stepping down – some in dismay at the direction of their leaders. Nevertheless, other parties have been unable to capitalize on these failings. The pro-Remain Liberal Democrats and the Brexit party are both ceding votes, according to surveys.

Further polls may move the pound, with investors preferring the apparent path of Johnson's Brexit deal and business-friendly policies against the uncertainty of a hung parliament or seeing hard-left Labour leader Jeremy Corbyn in power.

In Washington, White House officials have been sending mixed messages about the state of trade talks with Beijing. Larry Kudlow has expressed optimism about clinching the first phase of an accord, sending markets higher. However, Peter Navarro – who authored a book titled "Death by China" – has said that there is no final deal, and President Donald Trump will have the final word.

GBP/USD has mostly been shrugging off trade headlines but is set to respond to important US data. The University of Michigan's preliminary Consumer Sentiment Index for November is forecast to show improvement. Sterling may further struggle in that case.

See  Consumer Sentiment Preview: The Beijing express arrives in the station

Overall, pound/dollar will likely reflect further BOE fallout, election polls, and US data.

GBP/USD Technical Analysis – Oversold?

The Relative Strength Index on the four-hour chart is barely above 30 – thus close to oversold conditions. That implies that additional drops may be limited. Nevertheless, momentum remains to the downside, and the pound trades below the 50 and 100 Simple Moving Averages.

Sterling support awaits at 1.2785, which is a double-bottom after supporting cable in late October and on Thursday. Further down, 1.2750 and 1.2705 were stepping stones on the way up. 1.2655 was a temporary peak in mid-October and nearly converges with the 200 SMA.

Looking up, resistance awaits at 1.2875, which was a swing high earlier in the week. It is followed by 1.2920 and 1.2950, which also capped sterling on its way down. The late October peak of 1.2980 follows.

GBP/USD may drop down to 1.2702 after the BOE's blow — Confluence Detector