Sterling and GBPUSD have been in the spotlight since Thursday’s rate hike. The pound dropped after the hike and gave back its recent gains. Craig Erlam, Senior Market Analyst for OANDA tells us that this shows the hike was fully priced in already. He says that it was a positive sign that it held around the 130.00/130.50 level.
However Craig tells us that in his view there is more downside potential than upside potential in the pair. Considering that the BoE is only foreseeing two rate hikes in the next 3 years. That is assuming that their forecasts are correct!
Looking at the technical picture the pair is currently in the 55/89 moving average band. It is now testing to the upside at around 132.00. That level is currently holding as resistance. One must also note that it is also the midpoint to the big candlestick that appeared after the rate hike. It wouldn’t surprise Craig if we moved back to the 130.00 and 130.50. Another test of that low.
Craig tells us that it is completely possible that it remains range bound in the near term as we await further developments. Should we see a break out at the 130.00 level then we could return to the 128.00 level. This would be a sign that people are a little bit more bearish on the pound.
Not only was there an absence of rate hike support there are still many other uncertainties. Such as slowing growth. The political situation isn’t helping either and could be exacerbated by the paradise papers. Craig says that there is no real reason to be bullish on Sterling. We have to remember that a 200 point move in a currency is quite significant. They don’t move in straight lines. They do tend to come with corrections along the way.
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