The British currency is under pressure due to the growing likelihood of another divergence in interest rate levels between the Federal Reserve and the Bank of England—not in the latter's favor. While the U.S. central bank has consistently signaled over the past six months that it is not planning to lower rates anytime soon, its British counterpart is again facing the prospect of easing policy amid falling inflation in the United Kingdom. Yes, the dollar still suffers from systemic weakness, but the pound isn't doing particularly well either, which may result in a localized decline for the pair.
From a technical standpoint, the pair shows the divergence between oscillators and price. However, it has yet to fall below the key level of 1.3400, a breach of which could open the path downward.
Technical View and Trade Idea:
The price is currently trading below the middle line of the Bollinger Bands and below both the 5-day and 14-day Simple Moving Averages (SMA). The RSI is above the oversold zone and moving horizontally. The Stochastic indicator is below the 50% level and provides no clear signals.
I believe that a drop in price and a firm move below the 1.3400 mark could lead to a decline toward 1.3265. A probable entry point for short positions may be considered around the 1.3390 level.
