The pound was the loser across the board yesterday, as it plunged 156 pips from its daily high against the dollar. The Bank of England members voted 6-2 in favour of keeping the bank rate at a record low of 0.25%.
This was widely anticipated by economists, however the cut in growth forecasts caught the market by surprise, reducing it from 1.9% to 1.7%, with Mark Carney citing Brexit as a major contributor to this. This combined with the dovish tone of the statement, pushed back any ideas of a rate hike and resulted in the pounds poor performance yesterday.
We have non-farm payrolls coming out today at 13:30 which will likely be the catalyst about whether this market will resume its uptrend or break below our significant support level.
Chart 1: GBPUSD Daily
On a daily technical stand point, the market dropped to the daily support level we identified at 1.3116. Whilst this level holds the bias is still to the upside. Despite this there was a signficant bearish engulfing candle formed yesterday which offers downside risks.
Based on yesterday's candle I would expect consolidation over the next few trading days before a move higher. Should GBPUSD break below 1.31 further downside is expected. The confirmation that this is a break to the downside would be a close of the daily candle below that level.
Next levels of resistance; 1.3270, 1.3250 & 1.3442
Next levels of support; 1.3083 1.3025, 1.30 & 1.2941
The big factor on the next weeks direction will obviously be how GBPUSD reacts to the non-farm number. On the weekly chart, the current weekly candle is a high-test bar. With non-farm approaching, there are 3 scenarios that could happen;
1- Dollar strength which would suggest a move lower next week.
2- Knee jerk reaction, GBPUSD sells off and rebounds, forming a doji candle and suggesting consolidation for a move higher.
3- Dollar weakness, forming a bullish weekly candle and ultimately continuing the move to 1.3442.