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  • GBP/USD outlook is mildly bearish in the short term.
  • The price is still well above the demand zone of 1.3600-60.
  • Weaker US Dollar keeps lending support to the Pound.

The GBP/USD outlook is mildly bearish after we saw a pullback on Friday amid the Dollar’s strength. However, it is a short-term retracement only.

The British Pound began to correct against the US Dollar on Friday. The Pound Sterling went up about 400 pips before it began to correct. Thus, the British Pound has been wired seriously in the last two weeks, and we can only try to find the reason behind strength.

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By and large, nothing unexpected happened. In recent weeks, we have repeatedly said that we expect a renewal of the global recovery trend. Now, of course, it is still not possible to say with certainty that the uptrend has resumed. However, the chances are extremely high.

Recall that the pair dropped to the area of “‹”‹1.3600 – 60, which we have repeatedly called the target. As for the fundamentals, then there were practically none. We mean that last week, and even a week before that, there simply were not so many macroeconomic events that could push a 400 pips rally. However, the pound sterling has been growing for two weeks already. So, now new buying of the British currency by large players would be more suitable. But their net position fell below zero (according to the COT report), so their sentiment is now bearish.

From our point of view, this paradoxical situation is explained by the fact that hundreds of billions of dollars from the Fed continue to flow into the American economy, which continues to inflate the money supply and devalue the Dollar. Therefore, this situation arises, in which the largest and most important market players sell off the Pound, and it rises in price. From our point of view, the US Dollar is depreciating faster than the Pound. The inflation data in the UK and the USA indirectly confirm this.

The most important labor market data will be published in the US this week, and the Bank of England will hold a meeting in the UK. All these events are extremely important, but, probably, the reports from ADP and Nonfarm, Payrolls will be even more important.

Nothing supernatural can be expected from the Bank of England now. After the Fed made it clear that there can be no talk of any tightening of monetary policy now, hardly any of the traders will seriously expect the Bank of England to talk about curtailing the QE program or raising rates.

Although formally, it is the Bank of England that is a little closer to the completion of the stimulus program than the Fed, since one of the nine members of the monetary committee has already voted for the reduction of the QE program for two meetings in a row. How will it be this time – we will find out on Thursday.

Actually, this is even the main intrigue of this meeting, which promises to be as passable as possible, as the last Fed meeting. Thus, everything can end with a regular monetary policy report, and that’s it. Since the regulator has no reason to cut the QE program now, the Pound Sterling is unlikely to receive support from the BA.

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GBP/USD technical outlook: Key levels to watch

The 4-hour chart shows a bearish outlook for the pair. The price is lying below the key 20-period SMA, while the widespread down bar posted on Friday came with a very high volume. The price is now consolidating with small up bars and very low volume. It means that the pair can trigger a strong bearish trend. The price is already below a key level of 1.3910, which is another bearish sign.

GBP/USD 4-hour chart outlook
GBP/USD 4-hour chart outlook

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