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GBP/USD: 29th January - 4th February

Speculators endured volatility last week in the GBP/USD, and this may have been only a hint of the fast price action that is certain to be demonstrated in the coming days.

The GBP/USD went into the weekend near the 1.23880 prices after demonstrating a rather dynamic week of trading. The GBP/USD started last Monday with a rapid rise above the 1.24000 level and reached its high for the week near 1.24475 early that day, but the currency pair then turned lower.  On Tuesday afternoon the GBP/USD touched a depth of around 1.22630. And then the rest of the week provided fireworks as well with a high near the 1.24300 ratios on Thursday.

Last week may prove to have been a good learning ground for speculators who survived the tumult of the GBP/USD because, in the coming days, greater volatility will be produced.  A huge week of powerful market forces waits for speculators in the GBP/USD. Traders who like to monitor the opening of the GBP/USD coming out of the weekend before dipping their toes in the water may want to be extra conservative.

Federal Reserve, Bank of England and U.S Jobs Data are all in the Pipeline

The GBP/USD has seen a rather solid bullish trend develop and it has been able to maintain its higher values when a one-month chart is examined. However, last week also clearly proved dangerous as the range of the GBP/USD delivered a rather volatile amount of price velocity.  The GBP/USD has found it difficult to sustain prices above the 1.24000 level but has challenged higher values, while the 1.23000 mark looks to be a psychological barrier below but has also seen lower depths displayed.

The U.S. Federal Reserve will announce its interest rate policy this coming Wednesday, the Bank of England will follow with its decision on Thursday, and then U.S. job numbers will be released on Friday. Any one of these three events would typically cause chaotic short-term trading for the GBP/USD. These three important risk events combined will certainly make for a proactive and reactionary week of GBP/USD price action.

  • The U.S. Fed is expected to raise its interest rate by 0.25% again on Wednesday.  However, it is the policy outlook of the U.S. central bank everyone wants to know.
  • Will the U.S. Federal Reserve begin to admit the U.S. economy is slowing and that its interest rate hikes will be paused in the coming months?
  • The Bank of England is expected to increase its borrowing rate by 0.50% on Thursday.

Data from the U.S Suggests the Economy is Slowing Down

Inflation and growth data from the U.S. last week showed decreases.  U.S. companies and their global counterparts are talking openly about less consumer demand. The U.S. and U.K. central banks have a responsibility to make clear decisions. Financial houses will react to the announcements and the GBP/USD will become choppy. Financial houses have been anticipating less aggressive policy and the GBP/USD will become dangerous as financial houses react to the pronouncements of the Federal Reserve and Bank of England. If the U.S. Fed shows it will consider stopping its interest rate hikes in the mid-term the GBP/USD could become stronger.

GBP/USD Weekly Outlook:

The speculative price range for GBP/USD is 1.22510 to 1.25290

Technical traders should be very careful this week.  Certainly, important psychological ratios such as the 1.23000 and 1.24000 marks will be very important, but the behavioral sentiment will be affected in the coming days and if there is a shift of outlook by financial houses and large speculative forces, then the GBP/USD could become very volatile. The 1.227000 looks like it should hold as a strong line of support if the currency pair becomes bearish. Imagining a lower value that is sustained near 1.22600 seems farfetched, and this likely would only occur if the U.S. Federal Reserve signals a surprising amount of aggressiveness. 

Bullish behavior continues to show signs of life in the GBP/USD, but traders may need to remain cautious regarding their upwards targets. The 1.24000 level needs to be sustained and prove that it can generate additional force that carries the GBP/USD above the 1.24400 ratios and still continue to rise. While the 1.25000 may feel attainable to some speculators and they may be proven right, timing the exact moment this goal will be hit is hard.


Robert Petrucci
About Robert Petrucci
Robert Petrucci has worked in the Forex, commodity, and financial profession since 1993. Important aspects of his work involve risk analysis and advisory services. As an advisor in a Family Office he maintains a conservative approach for wealth management and investments. Robert also works in private finance with investors and companies delivering financial and management services.

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