GBP/USD Weekly Forecast: GBP/USD Rally Out of Steam?

GBP/USDFUNDAMENTAL HIGHLIGHTS:

• GBP REJECTS RESISTANCE
• BOE DOWNPLAYS NEGATIVE RATES
• MARKET SENTIMENT TO DICTATE GBP

GBP REJECTS RESISTANCE: In what has been relatively choppy week for FX markets, GBP/USD eked out minor gains of 0.2% (at the time of writing), while EUR/GBP headed towards key multi-month support at 0.8860-70. Back to GBP/USD and for those interested technical levels, the 20DMA resides at 1.3568, in which a close below could mark a double top at 1.37.

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GBP/USD Chart: Daily Time Frame

Source: Refinitiv

BOE DOWNPLAYS NEGATIVE RATES: In light of the third national lockdown, negative rates had once again comeback into the spotlight. BoE’s Tenreyro continued to remain in favour of NIRP, noting that theoretically, rates could go to -0.75%. However, with BoE Governor Bailey stating that negative rates are a controversial issue, a slight hawkish repricing in OIS markets had kept GBP better bid on the crosses.

BANK OF ENGLAND COMMENTARY

The Bank of England: A Forex Trader’s Guide

MARKET SENTIMENT TO DICTATE GBP: Looking ahead to next week, while the UK’s vaccine rollout has been helped underpin GBP despite the elevated number of virus cases, market sentiment will likely remain the key driver in the short term for the currency. That said, domestic data will be worth watching and particularly the UK PMIs, which provides a more timely update regarding the UK economy. Although, with the services sector likely to remain in contractionary territory given the current national lockdown, eyes will be on the manufacturing sector, which will be the first look at business sentiment post-Brexit.

UPCOMING GBP RISK EVENTS

Jan 20th: UK CPI

Jan22nd: UK PMI & Retail Sales

EUR/GBP LEVELS IN FOCUS

Source: Refinitiv

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