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GBP/USD – Too soon for 1.40?

BoE signals tapering and rate hikes

The pound is higher on the day after the Bank of England laid out plans for reversing emergency stimulus measures and raising rates. But it hasn’t really changed much as far as the charts are concerned.

Price action continues to push against the key fib levels, as well as the 55/89 daily SMA band, but is there any indication that we’re about to witness a breakout moment?

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I’m not overly inspired by the action on the lower timeframes. The 4-hour chart isn’t particularly bullish and in fact, the long upper wicks on the last two candles is arguably a bearish signal.

The hour chart shows the rally building throughout the day, since finding support around the 200/233 SMA band, which could be viewed as bullish.

But a look at the momentum indicators – MACD and stochastic – don’t fill me with hope. While price has been building throughout the day, momentum has not. In fact, the stochastic displays a clear divergence.

While divergences aren’t bearish indicators, per say, coming around key resistance on the daily chart does strike me as a big red flag. Especially after the BoE has just offered improved forecasts for growth and unemployment, while laying out a plan for reducing asset purchases and raising rates.

That isn’t to say we won’t see price break above 1.40. But it does make me wonder whether it has the legs to do it on this occasion.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [5]

Senior Market Analyst, UK & EMEA at OANDA [6]
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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