The GBP/USD was behaving in a rather bullish manner last week until BoE Governor Bailey said the U.K could have to endure a tough economic road.
Traders of the GBP/USD were rudely treated by fundamental powers late last week. After reaching a high of nearly 1.26795 on Wednesday and likely adding to visions of new highs being able to be created in the minds of optimistic bulls, Bank of England Governor Andrew Bailey poured cold water on the GBP/USD. After the BoE announced a quarter-of-a-point interest rate hike that was anticipated, Bailey then surprised GBP/USD traders with his rhetoric.
Tougher Than Expected Economic Conditions Comments from Bailey Stirred the GBP/USD
Trading in the GBP/USD held firm in the midst of the interest rate hike from the BoE, but Bailey’s comments saying the U.K. central bank had not correctly anticipated the impact of rate hikes on the U.K. economy caused a scare. This was largely confirmed on Friday when GDP numbers from the U.K came in with a recessionary outcome of minus -0.3%. Obviously, the Bank of England knew what the growth numbers would be and had tried to warn the market, but the GBP/USD plunged lower still on Friday and went into the weekend near the 1.24470 mark.
The reality is the GBP/USD remains within the higher elements of its six-month charts technically. However, the cold dash of water thrown onto bullish traders of the GBP/USD was certainly unwelcome if targets beyond 1.27000 were imagined. The 1.25000 ratio has once again been brought into the spotlight and speculators seemingly have to deal with the ‘misdeeds’ of the U.S Federal Reserve and Bank of England in combination again.
The GBP/USD Lower Reversal is a Natural Part of the Forex Reality
- The current value of the GBP/USD is now near levels not seen since the 2nd of May.
- Jobs numbers will come from the U.K. this Tuesday via Claimant Count Change and the Average Earnings Index.
- Fear of a recession in the U.K. could create some momentary headwinds for the GBP/USD, but this has to also take into consideration the U.S. economic outlook which is murky too.
Traders should anticipate a rather challenging week ahead for the GBP/USD. Financial institutions must digest the potential for worse-than-expected economic data from the U.K., and try to correlate the outlooks to the U.S. economy which also has a less-than-stellar forecast for the mid-term. The ability of the GBP/USD to gain in mid-April in an incremental manner was received with open arms from bullish traders, but the rapid decline late last week put the currency pair back within the sight of ‘lower’ values. While this might not help the mood of the GBP/USD holders, it may set up a speculatively intriguing week ahead as support ratios will be considered and likely wagered on as traders ask which prices are too low and make their bets.
GBP/USD Weekly Outlook:
The speculative price range for GBP/USD is 1.23475 to 1.25690
Behavioral sentiment will factor into GBP/USD in a massive way in the coming days as financial houses and traders try to deal with last week’s economic data and rhetoric. It should be noted that inflationary forces in the U.S. remain questionable, and other signs like consumer confidence were lackluster from the U.S. last week. If the U.S. delivers additional weaker economic data this week, this could spur support for the GBP/USD.
Traders who decide to look for more downside of the GBP/USD should be cautious and wonder when and where support could spark additional buying. Traders should not be overly ambitious this week. Having gone into the weekend near lows, the trading of the GBP/USD should be watched closely on Monday to see if sentiment has shifted. A lower move may indicate a test of the 1.24000 level could happen and the GBP/USD could challenge other lower marks, but tests below the April marks of 1.23500 would be rather surprising.
Looking for upside momentum as a speculative bet on the GBP/USD may feel contrarian for short-term traders, but if support levels start to prove durable this may become a rather intriguing wager. The GBP/USD may find a choppy trading ground in the coming days as a ‘new’ temporary equilibrium is sought for the currency pair as financial institutions try to balance their outlooks.