The GBP/USD hit a high of nearly 1.23430 on Thursday of last week after the Bank of England essentially copied the U.S Federal Reserve and increased its Official Bank Rate by 0.25% to 4.25%.  While the actions of the Bank of England were expected and likely fueled the surge of buying for the GBP/USD, things took a turn on Friday as corporate banking fears crept into the psyche of the marketplace again.

Central Banks are working under Shadows as Suspicions Rise in Corporate Finance

The rather polite highs made in the GBP/USD last week showed that financial houses believed the BoE would mirror the policy of the U.S Federal Reserve and issue tough rhetoric regarding inflation. In fact the Bank of England actually warned companies to stop raising prices last week. However, like the Federal Reserve, the BoE managed to show its lack of dealing with reality. Inflation while coming from higher prices being charged to consumers at the end of the supply chain is a result of the costs of production having launched upwards. The point is both the Fed and BoE do not seem to have a real grasp on how to curb inflation yet and seem to be fighting losing battles.

• And while inflation continues to cause problems, the corporate banking sector continues to cause worries.
• Technical traders may not want to hear about it, but concerns regarding Deutsche Bank this past Friday saw volatility mount in Forex and cause a flight to safe havens, meaning the USD got stronger because of fear escalating.

Support Levels Proved Durable Last Week but Could Prove Vulnerable if things get Dangerous

While the GBP/USD sank on Friday to depths slightly below the 1.21900 level early in the day, the currency pair did push higher at the end of the day.  The last two weeks of trading have seen the effects of nervous behavioral sentiment cause volatility in Forex and this week could prove to be reactionary too. While support levels certainly held and the lows last week were seen on Monday as the GBP/USD climbed upwards, this is because financial houses suspect the U.S Federal Reserve will be hard-pressed to continue to hike interest rates moving forward, nervousness regarding the corporate banking sector remains a real problem. 

GBP/USD Weekly Outlook:

Speculative price range for GBP/USD is 1.20950 to 1.23350

Traders should expect to see choppy trading continue in the days ahead because it is unlikely the shadows darkening the corporate banking sector are about to disappear quickly.  Speculators may be tempted to believe support levels should be durable in the GBP/USD around the 1.22000 level technically, but if fragile sentiment starts to boil, the currency pair could see lows tested again if financial houses seek risk adverse positions, meaning support could crumble.

If the 1.21900 level is brushed to the side the next test lower for the GBP/USD could be the 1.21700 mark. If this ratio is broken lower it likely means something has gone wrong in the corporate banking sector and folks are reacting by purchasing of the USD. It does look like a low of around 1.21000 could prove sturdy. Traders are advised to be prudent and monitor developing news in the coming days closely.

The ability of the GBP/USD to climb higher last week was not a great surprise, but the reversal lower is a reminder broad market conditions are fragile. If calmer waters are found and the financial world is able to comfort investors and speculators it is possible the GBP/USD could resume a climb higher and the 1.23000 ratios would certainly be a target. However, traders should not get overly confident too early, and use realistic take-profit orders to cash out winning bets. Technically the GBP/USD is in the middle of its mid-term price range when a three-month chart is looked upon. Speculative traders should remain cautious in the coming days and remain alert while using risk management.

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