EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(February 03 - February 07, 2020)
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British Pound Fundamental Outlook – BOE Sends Sterling Flying Higher, But Will It Last?
The UK finally left the European Union last Friday, which means the focus can now turn to their future relationship as equal trading partners rather than players on the same team. But, it is still early for that to move GBP as the negotiations won’t go deep for a few more months, at least.
Given that, the economy and the Bank of England can get back in their usual role as a powerful driving force for GBP moves. And, last week, the BOE did move the currency sharply higher as the outcome of their meeting was taken as hawkish by the markets. The simple fact that the BOE held interest rates unchanged and only 2 MPC members voted for a cut instead of the expected 3 gave GBP the initial boost on the announcement.
However, it’s questionable how much the bullish move can extend this week because there isn’t much beyond the BOE’s “hold” decision to support it. The Bank of England was still dovish with their outlook on the economy, which they expect to remain weak due to the uncertainty over the upcoming UK-EU negotiations. That means rate cuts will still be on the table in the future if the economy worsens.
No important UK data is scheduled on the calendar for this week – further supporting the notion that GBP may retrace or consolidate last week’s moves over the course of this week. Finally, of course, flows in other currencies will also shape how GBP pairs trade to some extent.
GBPUSD Technical Outlook:
Last week, we discussed the triangle formation on the daily chart of GBPUSD, which cable broke to the upside in the end. However, at the open of the new week, the price has already retraced the moves significantly and is now near the levels where it opened last Thursday.
The broken resistance line of the triangle (standing around 1.3080) may act as support now. If it holds, this could lead to another bullish leg in GBPUSD. On the other hand, if it doesn’t hold, and GBPUSD instead breaks though 1.30, then that would be a significant bearish signal as it would also render last week’s breakout as a “fakeout”.
1.33 to the upside and 1.2800 to the downside remain the primary resistance and support zones that would be targeted in a bullish or bearish scenario, respectively. The 1.32 high from last week is also minor resistance now.
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