The British pound’s most recent bearish slide occurred after price respected the 50-day SMA in the middle of December. The recent fall took price to 5 ½ year lows, which is tentatively finding support just ahead of the 1.4200 handle. Weakness stemmed from inflationary pressures, recent weak manufacturing and service data, and the potential of a British exit from the European Union. Recent economic data and falling oil prices have also pushed backed analyst expectations on when the Bank of England will raise rates to the end of 2016 or early in 2017.
Tomorrow, the Bank of England Governor Mark Carney will deliver his first speech in London. If UK policymakers are overly concerned with weak oil prices hurting its chances of reaching its 2.0% inflation target, we could see dovish comments take price towards the 1.4000-1.4050 range.
The GBP/USD daily chart shows the strong bearish trend that has been in place since August. Price is also trending below all three key (200-, 100- and 50-day) SMAs. If the bearish move continues, major support will come from the psychological 1.40 level, which is also the 141.4% Fibonacci expansion level fo the 2015 low to high move. It is around that area that we could see a bullish bounce open the door for a round of profit taking.
If we see the noted support level break, further pressure could target the 1.3720 zone.
Major resistance will come from the 1.4570-1.4630 zone.
The trade: Sell GBP/USD at 1.4375 with a stop loss at 1.4475 and a take profit at 1.4075. The Risk/Reward Ratio is 1:3