Earlier in London, the British pound rallied against its major trading partners after Bank of England Governor Carney raised the prospects of rate hikes in the near future. Sterling initially rallied to 1.56 from 1.5480 following the comments. A few hours later, the currency pair rallied to 1.5633 following a disappointing US Retail Sales release, but then settled around the 1.5570 area. Weaker US data might push back expectations for the Federal Reserve to hike rates and that could be bearish for the U.S. currency. Stagnating inflation data however should keep BOE voting members to support keeping rates unchanged.
Price action on the GBP/USD daily chart shows that the strong bounce from Carney’s comments have taken price tentatively above the 50-day SMA, which currently trades at 1.5541 and the bearish trendline shown in red. Current major support is coming from the 200-day SMA at 1.5431. If bullishness is unable to recapture the 1.5600 handle over the next couple of days, we could see a deep pullback here targeting the 1.50 handle.
If we see a major drop with sterling, deeper support could target the 1.4850 region. It is around that area that a bullish Gartley pattern could form.
The trade: Sell GBP/USD 1.5450, with a stop loss at 1.5150 and take profit at 1.5550. The risk/reward ratio is 1:3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading