The Bank of England’s announcement yesterday caught many FX traders off guard. Although the Official Bank Rate was kept unchanged at 3.75%, the tone of the communication was noticeably more dovish than expected, reshaping market expectations.

Media reports revealed that four out of nine members of the Monetary Policy Committee voted in favour of an immediate rate cut. This voting split has increased the likelihood of monetary easing in the coming months, reducing the appeal of holding sterling and prompting a sell-off in the pound.

Technical Outlook for GBP/USD

Since November last year, GBP/USD has been trading within an upward trend, defined by a rising price channel. However, the latest decline has put the integrity of this structure into question.

Until recently, bullish momentum was very strong. The pair had been climbing steadily along the blue support line and even managed to move above the upper boundary of the ascending channel.

That optimism faded quickly. Selling pressure intensified, and bears forced the price lower, breaking several key technical levels in turn:

→ the rising support trendline;
→ the upper edge of the channel;
→ the channel midpoint, reinforced by the 1.3640 area.

This move pushed GBP/USD down towards the lower boundary of the channel, close to 1.3530 — a level that previously acted as resistance in late December and early January.

Most of the gains accumulated at the end of January have now been wiped out. The current rebound in GBP/USD may therefore be no more than a corrective bounce, offering sellers a brief pause before a potential attempt to break below the channel’s lower boundary and shift the market towards a broader bearish path (highlighted in red).

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