British Pound (GBP) Price Outlook: GBP/USD Stable But Still Testing Support

(MENAFN- DailyFX) GBP/USD price, news and analysis:

• GBP is currently steady against both the US Dollar and the Euro but GBP/USD remains close to trendline support and would likely drop much further if that beaks.
• A UK interest rate increase by the Bank of England next week is now around 50/50 as concerns about Omicron make a rate rise less likely.

GBP/USD is looking steadier so far this week but, as the chart below shows, it remains close to the support line of a downward-sloping channel that has been in place since the start of June. If that should break then the pair would likely drop swiftly to at least 1.32, a level not seen since late last year, barring a brief foray below last week.

Note too that the relative strength index, or RSI, at the bottom of the chart has bounced off the 30 level that means it has been oversold.

Source: IG (You can click on it for a larger image)

From a fundamental perspective, all eyes are on next Thursday's UK interest rate decision by the Bank of England. Not so long ago, an increase was seen as almost certain but market pricing currently suggests only a 50/50 chance of a raise from the present 0.1%.

That change of heart is due principally to fears about the Omicron variant of Covid-19, although recent comments on it from both the US and South Africa have been broadly encouraging.

The change of mind on the chances of a rate hike was emphasised by comments by BoE policymaker Michael Saunders, who voted for an interest rate hike last month but said last Friday that he wanted more information about the impact of Omicron before deciding how to vote.

As for the data, figures released early this session by the Halifax division of Bank of Scotland showed UK house prices up by 8.2% year/year last month. That was reported to be the largest increase for 15 years but had little impact on the Pound.

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Turning to positioning, the latest IG client sentiment figures are currently sending out a bullish signal. The retail trader data show 72.33% of traders are net-long, with the ratio of traders long to short at 2.61 to 1. The number of traders net-long is 3.25% lower than yesterday and 7.95% lower than last week, while the number of traders net-short is 24.19% higher than yesterday and 7.54% higher than last week.

Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may fall. Yet traders are less net-long than yesterday and compared with last week, and the recent changes in sentiment warn that GBP/USD may soon move higher despite the fact traders remain net-long.

-- Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

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