Dovish Shift

It was another disappointing week for the pound, pencilling in its worst-performing week of the year (-1.1%). March is poised to end the month considerably off best levels, fuelled by the recent shift in MPC votes with the Bank of England (BoE) now edging ever closer towards easing policy (this was a surprise in the markets as investors were pricing in that the BoE was going to be one of the last major central banks to step up and cut rates).

Higher Timeframes Suggest Further Selling

Price action on the monthly chart continues to respect resistance at $1.2715. While one may argue that this chart is now in the early stages of an uptrend, chart studies suggest that the next layer of resistance at $1.3111 is pivotal. Until a break of the latter unfolds, which would demonstrate a clear higher high and a well-defined foundation for a longer-term uptrend in the GBP against the US dollar, the monthly support level at $1.2173 could be viewed as the next logical longer-term downside target for GBP bears.

Across the page on the daily timeframe, the week concluded within a stone’s throw of support at $1.2527, a level complemented by a 1.272% Fibonacci projection ratio at $1.2517 (or, for any Harmonic traders, an ‘alternate’ AB=CD bullish formation) and possible oversold conditions, according to the Relative Strength Index (RSI).

So, as per the monthly and daily timeframes, sellers have scope to extend downside this week, at least until $1.2527 on the daily scale.

H1 Chart: Sell Rallies?

Where does this leave short-term flow on the H1 chart?

According to the technicals and the recent dovish shift from the MPC, together with the lack of UK economic data this week, traders are likely to seek short-term bearish setups: sell rallies. While a late reaction was seen from resistance at $1.2618 last week, forcing price back under $1.26, the decision point area between $1.2646 and $1.2634 may call for attention should we see another leg higher this week. Alternatively, remaining sub $1.26 and consuming bids at support from $1.2575 opens the door for short-term breakout selling towards support at $1.2556 and subsequently daily support underlined above at $1.2527.

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