GBP/USD Forex Technical Analysis – Volatility Expected as Traders Brace for End of Emergency Bond Support

The British Pound is edging lower on Wednesday as the safe-haven U.S. Dollar continued to move higher. Traders are still reacting to yesterday’s volatile session that was fueled by a top Bank of England (BoE) official.

On Tuesday, BoE Governor Andrew Bailey said pension funds should finish rebalancing their positions by Friday when the British central bank is due to end its emergency support program for the country’s fragile bond market.

Earlier on Tuesday, the Pensions and Lifetime Savings Association, an industry body, urged the BoE to extend the bond-buying program until October 31 “and possibly beyond.”

The Sterling is trading at a two-week low following Bailey’s remarks.

At 04:00 GMT, the GBP/USD is trading 1.0946, down 0.0025 or -0.23%. On Tuesday, the Invesco CurrencyShares British Pound Sterling Trust ETF (FXB) settled at $105.55, down $0.82 or -0.77%.

Sterling Traders Brace for Slew of Economic Reports

Ahead of today’s U.S. Producer Price Index (PPI) report at 12:30 GMT and the Fed meeting minutes at 18:00 GMT, GBP/USD traders will get the opportunity to react to several key reports at 09:00 GMT.

The key release will be monthly Gross Domestic Product (GDP). It is expected to come in at 0.0%, down from the previously announced 0.2%.

Other reports include Construction Output, Goods Trade Balance, Industrial Production and Manufacturing Production. Traders will also get a chance to react to the FPC Meeting Minutes and the FPC Statement.

We’re looking for heightened volatility and a strong bias to the downside due to fear of the unknown as traders brace for the lifting of emergency support in the country’s fragile bond market.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.1494 will change the main trend to up, while a move through 1.0349 will signal a resumption of the downtrend.

The minor trend is also down. A trade through 1.1180 will change the minor trend to up and shift momentum to the upside.

The short-term range is 1.0349 to 1.1494. Its retracement zone at 1.0922 to 1.0786 is the next downside target and potential support.

The main range is 1.2293 to 1.0349. Its retracement zone at 1.1321 to 1.1550 is resistance. This zone stopped the buying at 1.1494 on October 5.

Daily Swing Chart Technical Forecast

Trader reaction to the short-term 50% level at 1.0922 is likely to determine the direction of the GBP/USD on Wednesday.

Bullish Scenario

A sustained move over 1.0922 will indicate the presence of counter-trend buyers. If this creates enough upside momentum then look for a surge into the minor top at 1.1180, followed by a new minor pivot at 1.1209.

Bearish Scenario

A sustained move under 1.0922 will signal the presence of sellers. This could trigger a quick break into the short-term Fibonacci level at 1.0786. If this price is taken out by heavy selling volume then look out to the downside. The next major target doesn’t come in until 1.0349.