GBP/USD – Next Stop 1.46?

GBP/USD – Next Stop 1.46?

GBP/USD – Next Stop 1.46?

Thanks to the improvement in risk appetite, sterling ends the week near its one month highs but we believe that the rally is beginning to lose momentum and next week’s Bank of England meeting should drive it lower. The BoE has a lot more to be worried about in March compared to January. While their trade deficit narrowed, the improvement in Jan came only because of a large downside revision to the December report. Their deficit with the European Union hit record levels with exports falling at the start the year. All 3 of the PMI reports showed weakness in the economy and as BoE Governor Carney mentioned at the start of the week, Brexit is the biggest domestic risk to financial stability. No changes are expected from the central bank but the minutes from the meeting should contain a more cautious tone that should negative for the currency.

Technically GBP/USD broke above the 50-day SMA at 1.4320 leaving the next important resistance level at 1.4400. This was tested and broken momentarily on Friday and if it is challenged again, the next stop for GBP/USD will be 1.46. However if it fails at 1.44 a decline should take the pair back down to support at 1.4175, a level where daily rallies have paused on numerous occasions.

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