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British Pound (GBP) Outlook: GBP/USD in The Grip of Lower Highs and Lower Lows


MongiIG

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GBP/USD PRICE, CHART, AND ANALYSIS

  • Fed chair Jerome Powell rattled GBP/USD lower on Tuesday.
  • A pattern of lower highs and lower lows remains in place.
GBP/USD extends slide and approaches 1.3800

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Fed chair Jerome Powell’s hawkish commentary on Tuesday sent GBP/USD tumbling below 1.3200 in a matter of minutes before buyers re-entered the market and negated the selling pressure. Chair Powell said that the Fed would abandon the ‘transitory’ inflation outlook and suggested that the central bank may increase the pace of tapering the bond-buying program from its current rate of $15 billion a month. Inflation in the US is at a 30-year high and many in the market had already dismissed the ongoing transitory argument, but the announcement that the QE program could end sooner than anticipated drove the US dollar higher across the board. Chair Powell’s speech also happened around the 4pm London Fix – when the official daily rate of a currency pair is fixed – and with month-end rebalancing flows, leading to a volatile period for many USD pairs.

While the UK’s vaccination program continues to forge ahead at great speed, the country is not immune to any potential economic setbacks and fresh lockdowns caused by the new Omicron covid variant. This new variant will be closely watched by the MPC who until recently had been fully expected to hike interest rates by at least 15bps at the December BoE meeting. These expectations have now been pared back to around 65% for a 15 bps move.

The daily GBP/USD chart remains negative despite today’s move higher. A multi-month series of lower highs and lower lows dominate the chart and while the pair may reclaim prior support at 1.3354, a move back above 1.3515 to break the series of lower highs may be difficult.

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GBP/USD DAILY PRICE CHART DECEMBER 1, 2021

British Pound (GBP) Outlook: GBP/USD in The Grip of Lower Highs and Lower Lows

Retail trader data show 74.04% of traders are net-long with the ratio of traders long to short at 2.85 to 1. The number of traders net-long is 11.84% lower than yesterday and 11.28% lower from last week, while the number of traders net-short is 5.62% lower than yesterday and 15.35% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

What is your view on GBP/USD – bullish or bearish?

 

By Nick Cawley, Strategist, 1st December 2021. DailyFX

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