The Cable is approaching the 1.4 psychological level ahead of the BoE monetary policy statements. Will there be a flash dip below the critical level or the pair will be supported enough to fly above it?
A dovish/less-hawkish-than-expected Fed on Wednesday opened the ground for the dollar bears. the index slumped to 91.3 before a quick recovery to retest the 91.7 level. The over-ther-board dollar bear supported a bullish Sterling. However, depite the dollar latter recovery, Pound remains firm around the 1.4 psychological level. We have seen further rallies stunted at 1.4 three times in March. Will there be a breakthrough this time (4th attempt)? It all depends on the approach the BoE will take on Thursday.
The UK economic recovery is exceeding expection just like many of the major economies. A massive vaccine roll out has seen over 30 million UK residents vaccinated. This has led to an overall GBP strength against its peers since the turn of the year. Meanwhile, with a rising yield, 5.1% unemployment rate and 0.7% inflation rate, investors believe the bank might consider a negative rate to quicken recovery. However, the general market consensus supports an unchanged rate at 0.1%.
Aside the rate statement, the bank will make projections into the next quarters. More dovish than expected or less hawkish than expected would drag the Sterling downside. We might then see 1.4 resisting further rallies yet again. However, on this occasion, massive decline is expected to follow to 1.39 first and as deep as 1.37 in the coming weeks. On the other hand, an overly hawkish statement would shoot the pair far above 1.4050 and up to 1.41 and 1.42 in the short term.
GBPUSD technical analysis: will the bears hold around 1.4?
As the chart above shows, the current GBPUSD rally is a correction of the impulse wave dip from 1.4244 to 1.3778. At the end of the current bounce, we should see further decline toward 1.355. However, a lot depends on the resistance zone around 1.4. The BoE decisions today will have a lot to do in the short term. However, technically, GBPUSD is more poised for the bears than the bulls as the chart above shows. If a hawkish BoE couldn’t force a break above the 1.4-1.4050 resistance zone, traders should watch for a ‘bull trap’. On the other hand, a dovish BoE will drag the pair down before going deep into the zone with little hesitation especially as rising US bond yield continue to prevent a dollar backlash.
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