The general consensus going into today’s UK budget is that Chancellor Philip Hammond will disappoint and that the GBP/USD may extend its declines towards 1.20. He is well aware of Brexit risks and may thus predict a more turbulent economic outlook. The risk therefore is if he expresses more optimism about the economy and delivers more fiscal spending plans than expected. If that’s the case, the GBP/USD could easily rebound. It is worth pointing out that those who had sold the pair, may cover their positions now, triggering a short-squeeze or relief rally on the cable. There’s some important US economic data coming up as well, so there is even more reason why the sellers may bank profit.
Indeed, with the GBP/USD approaching lower end of its wide range, we are on the lookout for bullish signs. So far, we haven’t seen anything to suggest the cable will start its rebound. But at the time of this writing, it had drifting into a key area between 1.2140 and 1.2170. As can be see, the 1.2170 level has repeatedly held on a weekly closing basis. The 1.2140 level corresponds with the 78.6% Fibonacci retracement level. While it may end up going to 1.2000 after all, in my view the risk of a counter-trend move here is high.
GBPUSD Weekly Chart