GBP/USD Price Analysis: 1.35 to Cap Gains, Eying BoE Meeting
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- As traders turn their attention to the Bank of England, the GBP/USD pair is at a crossroads on the charts.
- A recovery in the US dollar will pave the way for a significant continuation of the cable’s bearish trend.
- Technically, the GBP/USD looks positive to test the 1.3500 level.
With the Bank of England’s speech on Thursday, the GBP/USD price analysis is solid at 1.3470 ahead of the London session but faces a wall of technical resistance. In a note published Tuesday, Rabobank analysts said that sterling net positions have reached a halt due to hawkish expectations.
Sterling net positions ended abruptly last week as net short positions increased despite expectations of a BoE rate hike in February. Analysts say the money market will tighten fairly this year. However, concerns about sharp increases in the cost of living in the UK cast doubt on the Bank of England’s ability to meet those expectations.
Nevertheless, in keeping with positioning ahead of the remaining sessions, the spot market could collapse ahead of the session, especially if the US dollar can see a correction in demand. The dollar slumped about 70 points on Monday as investors consolidated gains ahead of Friday’s closely-watched Nonfarm Payrolls report, taking a break from a furious rally that sent it to a 1.5-year high on Friday.
It is improbable that the pound will make rapid gains ahead of critical events on either side of the pond this week.
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Thursday is welcomed by the old lady. According to Reuters, most economists polled by the news agency expect the Bank of England to increase interest rates to 0.5% from 0.25% on February 3. As soon as the bank reached the 0.5 percent threshold, it would stop investing in maturing securities and cut its government bonds by £875 billion.
The Bank of England’s interest rate will be even tighter than expected. Goldman Sachs forecasts interest rates of 1% in May and 1.25% in November to demonstrate that the MPC is serious about inflation targeting and will ensure the UK is not at risk of a pay rise.
GBP/USD price technical analysis: Eying 1.3500
The GBP/USD price remains well bid above the 20-period SMA. However, the pair may find resistance by the 200-period and 50-period SMAs around 1.3480 – 1.3500 area. The volume data favors the bulls at the moment. Any move beyond 1.3500 will likely accumulate more buying and aim for 1.3550.
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On the flip side, 1.3400 will be the key support ahead of 1.3360 and then 1.3300. However, the pair can ultimately aim for the long-term swing lows around 1.3100s. But the recent scenario suggests a bullish bias.
