GBP/USD once again found support by its 30-DMA, currently at 1.2411, and with
four failed tests of support ahead of 1.24, bears are likely to unwind shorts,
which will put resistance at Monday's 1.2523 high in focus.
Still, potential headwinds for sterling remain.
Having cleared the Fed and ECB rate decisions with little distress, GBP/USD and
EUR/GBP traders are likely to trade defensively ahead of the Feb. 6 BoE rate
decision. With a 25bps cut from the MPC priced in for some time, GBP/USD traders
will scrutinize BoE guidance regarding inflation, growth and perhaps fiscal
issues.
Markets will also be on edge over the coming weekend as U.S. President Donald
Trump has said he may begin his tariff program on Feb. 1. Though the UK does not
appear to be directly targeted, any tariffs on Britain's trading partners -- and
the potential for wholesale dollar buying to result -- would temper GBP/USD
gains early next week.
Technically, GBP/USD finds resistance in the mid-1.2520s by Monday's high and
the falling 55-DMA, with more significant resistance at 1.2571, the 50% Fib of
the Nov.-Jan. drop from 1.3043-1.2100.
An austere tariff surprise or dovish BoE cut on Feb. 6 would put support at the
rising 10-DMA by 1.2386 in focus, below which mid-January lows near 1.2160 and
perhaps the fiscal-tumult low at 1.21 could come quickly into focus.
GBP Chart:
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)