GBP/USD Fundamental Analysis – week of April 23, 2018

The GBPUSD pair fell hard during the course of last week as the incoming data from the UK continued to be weak and this is likely to make the BOE go on the backfoot and put off its plans for a rate hike over the next few months. This was a disappointment for the bulls and they showed it by selling off the pound which has led to its drop.

GBPUSD Falls Hard

Technically also, the bulls are in a very dangerous situation as all the hard work that they had put in over the last few weeks to keep the pair well bid and push higher is likely to go waste as the pair now shows a double top on the weekly chart with the highs from last week matching the highs from the range that it has been in over the last few weeks. This testing of the range highs and sharp rejection shows a strong weakness in the pair and the sellers would be looking to capitalise on that in the coming days and weeks.

The UK economy has struggled to match the bullishness and the optimism shown by the BOE as well as the traders and the investors in the pound. The incoming data had been weak for the past few weeks and we saw the average earnings index, the CPI and the retail sales data from the UK coming in weak as well. Thi is a clear sign that the UK economy is showing and beginning to show the effects of the Brexit process and hence the hawkishness of the BOE seems to be misplaced at this point of time.

Looking ahead to the coming week, we have the preliminary GDP data from the UK and the GDP data from the US as well and this is likely to bring in some volatility. On the other hand, the pair now rests in a strong support region of 1.40. We have mentioned in many of our forecasts that this is the line in the sand for the bulls and the bears. If the pair manages to stay above this, the bulls continue to be in control and this fall would only be viewed as a correction. But if the pair does move lower, then we are likely to see the bears regain control and this would mean that the pair could then move towards the 1.38 region in due course of time.