GBP/USD analysis March 2017

With Article 50 officially now just awaiting the Prime Minister’s say so, the sterling pound is at a pivotal point. Even though this is a 2-year process, the effects have already been seen with the pound getting stronger and will continue to affect the currency. Across the Atlantic, the FED just raised interest rates by 25 basis points up to 1% from the previous 0.75%. The market’s response to this action was immediate, causing the dollar to weaken. Neither of these responses was typical, which is what makes the GBP/USD pair analysis so interesting.

Technical analysis of the GBP/USD pair

Last week’s strong uptrend has pushed the pound to touch the 200-day SMA, which is going to make a move to the upside difficult. On the 4-hour chart, you can already see the candlesticks forming exhaustive candles and moving sideways, with the stochastic indicator in the overbought region. In the meantime, the price may keep moving in an oscillating pattern until economic news is released within the week.

Fundamental analysis of the GBP/USD pair

The fundamentals of this pair are pretty clear with the main determinants being the interest rate change in the US and the triggering of Article 50. Last week on the 15^th of March, the FED hiked interest rates to reach 1% and this caused the dollar’s strength to slide against the pound.

Despite expectations for the US dollar to become stronger following a rate hike, its strength actually decreased. The US dollar index fell from 101.700 to 100.74 and closed the week at 100.3. This drop can be attributed to the feeling that markets had already priced in a rate hike and the low rates of inflation in the US. For the sterling pound, the BoE had a more hawkish sentiment, despite maintaining interest rates

This week’s trend for the GBP/USD pair will be determined by inflation data from the UK which will come from the CPI, PPI, and Index Price index reports to be released on the 21^st of March. If the figures turn out to be great, and the market sentiment seems to think so, then the pound will soar even higher. Higher inflation would force the BoE to hasten the price hike they alluded to in the previous meeting, which would cause the pound’s strength to increase.

Later on, in the week, the FED chair Janet Yellen is expected to speak and her words will be very closely analyzed. The FOMC already took a dovish sentiment during their previous meeting, and if Yellen confirms this, it might cause further damage to the dollar. Unemployment claims reports will also be released on the same day, making the 23^rd of March a date to mark in our calendars.

Short and long-term outlooks for the GBP/USD pair

Given the bullish technical and fundamental analyses, it seems like the GBP/USD pair is going to be on an uptrend for the coming week. Targets should be set around the 1.27 region where there is a strong resistance level. You should place stop-losses around the 1.22 region at a support level.

On the longer term, though, the pound is going to suffer from Article 50’s triggering which is expected to happen next week on the 27^th of March. Experts at Deutsche Bank have already estimated that the pound will drop by 6% on the trade-weighted index by the end of the year. Since this is more likely, short long-term positions would be a very safe bet.