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Possible divergences appearing
The pound has come under heavy pressure recently, particularly against the dollar which has been performing well against the broader market.
While the BoE is poised to continue its run of a rate hike at every meeting, making it one of the more hawkish central banks, the moves in the pound are also a reflection of the challenges facing the UK economy, which the central bank believes is heading for double-digit inflation and a recession.
The question is how far the pound will fall and we’re already starting to see signs of the sell-off losing some steam. We’ve seen a brief correction following a clear divergence on the 4-hour chart, but there’s little to suggest it’s in the midst of a larger correction.
The early sign of divergence that we’re seeing on the daily chart on approach to 1.20 which has historically been a massive level of support may offer hints of what’s to come.
If the pair does hit new lows in the coming weeks, the momentum indicators could provide a clue as to whether 1.20 is going to break or hold.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.
His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.
Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
