Sterling entered 2018 on an incredibly bullish note with the price climbing above 1.4340 in January, levels not seen since the historic June 2016 EU Referendum vote.

While the lion’s share of Sterling’s impressive appreciation during the early part of Q1 was attributed to severe Dollar weakness, cautious optimism over a ‘soft Brexit’ outcome also played a small role.

It was interesting to see how a resurgent Dollar in February, and renewed uncertainty among investors over the Brexit developments, exposed the Pound to downside risks.

Although sentiment was eventually supported in March by the E.U. and U.K. agreeing on a Brexit transition deal, this was tempered by the fact that no agreement was reached on the Irish borders.

The question on the mind of many is, can the British Pound continue to move to its highest levels since the historic June 2016 EU Referendum over the course of Q2?

I will be closely looking at the technical for clarity on this issue, with the 1.40 level in the GBPUSD being used as a psychological level in the Pound before the currency moves in either direction.

While the Sterling will remain sensitive to Brexit developments, headlines around the Bank of England (BoE) and UK interest rates will likely encourage significant market volatility.

The market is currently optimistic that the BoE will raise U.K. interest rates towards the summer months, which should increase buying interest in the Pound.

Outside of the scope of Brexit, one factor that could weigh on sentiment for the GBPUSD is ongoing concerns that the U.K. economy is now falling behind its peers, with economic data regularly showing that U.K. growth is among the weakest in the advanced world.

It will also be worthwhile to monitor concerns over a potential global trade war and what implications this could have on the U.K. economy.

A scenario where risk aversion becomes a dominant market theme could easily punish the Pound, especially given its lack of risk appeal amid high market uncertainty.

Technical View on GBPUSD

Taking a look at the technicals, the GBPUSD remains somewhat supported on the daily charts above the 1.4000 psychological level.

There have been consistently higher highs and higher lows, while the MACD trades to the upside.

An intraday breakout above 1.4100 could encourage an appreciation towards 1.4230.

If bulls lose momentum on the daily charts, prices remain at risk of dipping towards 1.3920 and 1.3800.

Focusing on the weekly timeframe, the GBPUSD fulfils prerequisites of a bullish trend with a weekly breakout above 1.4230 inviting an appreciation towards 1.4300 and 1.4450, respectively.

Alternatively, a failure of prices to defend 1.4000 on the monthly timeframe could result in a sharp decline towards 1.3750 and 1.3450.

The 1.4000 level will remain a key pivot point as we enter Q2, with bulls in control above this level and bears in control below it.