GBP/USD – Abiding by the Technicals...

As expected earlier this week, the BoE was rather dovish in their December meeting minutes – See GBP/USD (Update 2) – Another bounce, another opportunity. Initially, Sterling traded higher against most of the majors as the release of the BoE’s MPC minutes showed a unanimous 9-0 vote on both the £275B asset purchase target and 0.50% interest rate, however some BoE members said the economic outlook deteriorated in December and that further QE expansion may be needed.

Sure enough, GBP/USD bounced and this was another opportunity to get bearish once again. It ended up terminating exactly where the technical’s suggested it should have – 1.5770/80 which saw a convergence of the prior wave-iv highs, 50% retracement and the 55-day sma. Additionally, just below saw the bottom of the daily Ichimoku Cloud around 1.5735. Furthermore, daily RSI failed ahead of the key 60/65 level (bearish) and looks poised to continue lower. Currently, Cable sees another key convergence around 1.5590/95 which sees the 13 & 21-day sma’s as well as the daily Tenkan Line. Should it break below this critical  level it would be a major technical blow for GBP/USD and could send it materially lower over the coming days/weeks. As I’ve been stating over the past few updates, I’m still seeking a move towards the October low near 1.5270/80 and potentially even test the psychological/option related 1.5000 level over the coming weeks.