Short-term Correction: GBP/USD has been consolidating since making a low on the year at 1.47 last week. As we can see in the 1H chart, it has rallied back to about 1.4853 before stalling. The fact that cable found resistance at a previous support suggests suggests bears are still in charge in this market.
Bearish Continuation:Furthermore, price has broken below the very short-term flag pattern and has crossed back below the 50-hour SMA. Meanwhile, the 1H RSI held below 60 again, reflecting maintenance of the bearish momentum, like it did last week, when it rallied from 1.49 to 1.50 before falling again.
The 1H chart signals bearish continuation, which means pressure on the 1.47 low, with risk of falling further.
2013-Lows Broken: When we jump to the weekly chart, we can see that cable cleared the 2013 lows last week, and the weekly candles in March suggest there is strong momentum to extend further.
In the monthly chart, we get a better sense of where we might see the next support to this raging bearish run.
Backdrop: As we can see in the monthly chart, GBP/USD is actually bearish-sideways. It has been sideways after the 2008 collapse which coincided with the financial crisis. The USD was the safe haven at the time. In 2013 and first half of 2014, GBP/USD looked like it was going to breakout above the multi-year consolidation, but after a brief break above 1.70, it came down in a hurry.
Medium/Long-term Outlook based on CB decision: As we break into almost 5-year lows, there will not be any significant support until price falls to the 1.4225-1.43 area, which represents the 2010-lows. This time around, it is not so much that the USD is the safe-haven, but because the FOMC is hawkish – looking to raise rates this year – and the BoE is on the fence about its future monetary policy. Some MPC members believe it should also raise rates at the end of the year, but others believe it might be appropriate to cut. The economic data as the BoE’s assessment of them will be key over the next few months. If data support the hawks, GBP/USD should find support around those 2010-lows. But if data suggests more loose monetary policy, we can see even this low broken, which would expose the 2008-lows at 1.3515. Also, if the FOMC postpones its rate hike, we might also see support for the GBP/USD at or above those 2010-lows.
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