From the Technical Analysis (TA) standpoint, the pound Sterling has entered an important zone of consolidation by reference to its historical performance, as can be seen on the chart above. This zone has provided strong support / resistance in the past and is intimately bound up with the 200 period Exponential Moving Average (EMA) on the weekly chart.
On this occasion price has almost reached the bottom of the zone. Therefore, if history is to be repeated (and the attention of large number of Forex traders around the world to this pattern increases the chances that it will) then we can expect at least a short-term rebound from last week’s downward move.
Fundamental analysis would also point to a period of bi-directional volatility. The US dollar has been on a remarkable upsurge recently, which has the effect of depressing the GBPUSD pair. However, the British economy is now on a strong footing and this can be expected to provide an impetus in the opposite direction.
Bank of England can impact this week
This coming Thursday sees the Bank of England Monetary Policy Committee (MPC) interest rate decision and Asset Purchase Facility announcement. These will provide the market with the rationale for any move in Cable, as the pound is known, and could even precipitate a change in direction.
Now that the referendum on Scottish independence, so prominent in the market place just recently but now very much yesterday’s news, is out of the way, the market will rely on decisions by the BoE and any related commentary, especially as these might have any relevance to interest rates. One problem in the past has been a tendency for the governor of the UK central bank, Mark Carney, to provide mixed signals in this regard.