Possible divergences appearing
The pound has come under heavy pressure recently, particularly against the dollar which has been performing well against the broader market.
While the BoE is poised to continue its run of a rate hike at every meeting, making it one of the more hawkish central banks, the moves in the pound are also a reflection of the challenges facing the UK economy, which the central bank believes is heading for double-digit inflation and a recession.
The question is how far the pound will fall and we’re already starting to see signs of the sell-off losing some steam. We’ve seen a brief correction following a clear divergence on the 4-hour chart, but there’s little to suggest it’s in the midst of a larger correction.
The early sign of divergence that we’re seeing on the daily chart is on approach to 1.20, which has historically been a massive level of support, may offer hints of what’s to come.
If the pair does hit new lows in the coming weeks, the momentum indicators could provide a clue as to whether 1.20 is going to break or hold.