The British pound plummeted to a five-month low against the euro on Monday amid concerns over the interest rate outlook. The latest market data shows significant moves driven by investor sentiment toward future monetary policy in Britain. Amid heightened speculation that the Bank of England may adopt a more dovish stance on interest rates, sterling faced increased selling pressure.
Analysts suggest the central bank is likely to pause or lower rates to support the economy, which contrasts with expectations for the eurozone, where rates may rise. The broader impact on currency markets also came into play as investors balanced competing narratives on economic recovery and inflation trends in different regions. The GBP/USD pair is currently experiencing strong support at levels below $1.2250.
This analysis focuses on the potential trading opportunities that can arise from this support level. The risk level for trades is set at 0.75%, and signal validity is limited to trades taken before 5 pm London time today. For long trade ideas, traders can consider going long following a bullish price action reversal on the 1H timeframe immediately upon the next touch of $1.2245, $1.2227, or $1.2206.
The stop loss should be placed 1 pip below the local swing low, and the stop loss should be moved to break even once the trade is 25 pips in profit.
Pound hit by rate speculation
50% of the position should be removed as profit when the price reaches 25 pips in profit, allowing the remainder of the position to ride.
For short trade ideas, traders can consider going short following a bearish price action reversal on the 1H timeframe immediately upon the next touch of $1.2315, $1.2348, or $1.2384. The stop loss should be placed 1 pip above the local swing high, and the stop loss should be moved to break even once the trade is 25 pips in profit. 50% of the position should be removed as profit when the price reaches 25 pips in profit, allowing the remainder of the position to ride.
The previous analysis suggested that $1.2250 was a pivotal resistance zone, and this resistance held, producing a profitable short trade. Currently, the GBP/USD pair shows a more bullish outlook, with the price consolidating and occasionally rising, breaking out of the descending price channel. While the US Dollar remains in a long-term bullish trend, this momentum appears to have paused, despite potential economic actions from the new US administration.
On the other hand, the British Pound has been weak due to poor economic data and uncertainty about the UK’s economic policies. However, these factors seem to be less influential in the short term. A cluster of three support levels near the current price suggests a supportive area that might hold today and potentially drive the price higher.
Hence, a cautious long trade from any bounce at one of these identified support levels could be considered, ensuring conservative profit-taking due to the counter-trend nature of this trade.