After starting the past week of trading near the 1.33500 level and making its ways towards the 1.33700 vicinity briefly on Tuesday, the GBP/USD started to see headwinds press down upon its value.
Financial institutions which had been leaning into the sentiment the U.S Fed would cut its interest rate this past Wednesday were proven to be correct, but any ambitions that the Federal Reserve would say they intend on cutting interest rates again in December were not heard.
Large traders which had been holding onto the outlook the Fed would have to be aggressively dovish the past handful of weeks, which kept the GBP/USD in elevated territory (albeit choppy conditions consistently) had cold water thrown onto their Forex positions on Wednesday. GBP/USD action started to show signs of nervousness on Tuesday as it incrementally traded lower, and those fears were substantiated on Wednesday.
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Support Levels Prove Targets are Vulnerable
Even as the Federal Funds Rate from the U.S was cut by 25 basis points to 4.00% on Wednesday, the GBP/USD proved the 1.33000 was not sustainable on Tuesday as nervousness built, and as the Fed delivered its policy statement the 1.32000 level proved vulnerable. By Thursday the 1.31200 ratio started to be challenged and Friday’s lows for the GBP/USD went to the 1.30970 vicinity. The Fed used the excuse of the U.S government shutdown for its lack of backbone regarding an additional interest rate cut in December.
While Jerome Powell, the Federal Reserve Chairman, kept the door open to all posibilites regarding interest rate decisions in December, financial institutions came away feeling rather unimpressed with the lack of clarity. The USD became stronger across Forex and the GBP/USD correlated well to the broad market and sank rather dynamically. The U.S government shutdown appears set to continue into this coming week with the ability to remain a stubborn political issue with no resolution.
Financial Institutions Shown Speculative Natures
For those who do not think large banks speculate themselves on Forex values and merely let their clients wager on prices, it should be remembered financial institutions are active in commercial cash forward positions for their corporate clients.
- The banks provide a price window outlook for corporate clients and ‘guarantee’ a price range within a value band driven by mid-term outlook.
- The GBP/USD which had been hovering around the 1.34000 to 1.35000 viewpoints the past few months with outliers – yet a fairly consistent range - got beaten up this past Wednesday.
- The U.S government is unlikely to issue official jobs numbers this coming Friday because of the government shutdown.
- Economic data remains scarce from official U.S government offices.
- Risk appetite may continue to be rather problematic in Forex this coming week.
- With uncertainty growing about U.S interest rates for December, financial institutions may produce further volatility.
GBP/USD Weekly Outlook:
Speculative price range for GBP/USD is 1.29100 to 1.33100
The price velocity downwards seen last week in the GBP/USD was violent. However, this is not the first time fast conditions have been experienced by traders. Risk management will be essential in the coming days. The notion that the GBP/USD has sold off too much may be a feature for some day traders, but they should reconsider their outlooks based on price action historically that has been demonstrated. The 1.31000 support level may feel like it is too low, but this past Friday’s price action proved that it could be penetrated.
While it may seem rather speculative to consider the 1.30000 level as a target in trading this coming week, if risk adverse trading mounts for the GBP/USD, it should be remembered in March and April of this year the currency pair was significantly below this value. Yes, the GBP/USD may look oversold and bullish perspectives may be proven correct over the coming weeks and months, but the short and near-term need to be given cautious scrutiny because volatility will remain a feature of trading this week.
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