British Pound (GBP/USD) Breaks Supportive Trendline Ahead of Bank of England (BoE) Meeting

• GBP/USD rattled by US dollar strength.

• Thursdays Bank of England meeting now key.

Sterling has started the week on the back foot and remains at multi-week lows printed during Friday‘s sell-off. The ongoing strength of the US dollar continues to weigh on the pair, and with the Fed now taking a hawkish turn, all eyes will be on the Bank of England this Thursday to see if the UK central bank warns against the recent rise in inflation. While all BoE policy measures are expected to left unchanged, last week’s ONS figures showed inflation jumping to 2.1% in May y/y, compared to 1.5% in April, the highest level in nearly two years and above the central banks 2% target. While the BoE is expected to maintain its loose monetary policy, any hint that the central bank is worried about inflation will spark fresh talk that interest rates may rise sooner than currently anticipated.

GBP/USD has broken below a long-running bullish trendline, suggesting further weakness ahead. Initial support at 1.3800 is currently being tested and a confirmed break lower will open the way to a cluster of lows around 1.3670. The pair remained heavily oversold and this may temper any short-term weakness.

Retail trader data show 66.19% of traders are net-long with the ratio of traders long to short at 1.96 to 1. The number of traders net-long is 2.86% higher than yesterday and 34.30% higher from last week, while the number of traders net-short is 4.07% higher than yesterday and 34.10% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

Stay tuned on WikiFX, more news coming soon!