GBP/USD Technical Analysis: Bulls Lack Momentum| MENAFN.COM

Sunday, 05 February 2023 10:59 GMT

GBP/USD Technical Analysis: Bulls Lack Momentum

(MENAFN- Daily Forex)
  • The gbp/usd exchange rate has reversed more than half of its decline this year, but it will now face the risk of a corrective setback that could push it toward 1.20, or perhaps back below it in the coming days.
  • The upward rebound gains of the GBP/USD recently reached the 1.2153 resistance level , its highest in three months.
  • Since then, it was subjected to profit-taking sales that were sufficient to push the currency pair towards the 1.1940 support level , before settling around the 1.2000 psychological resistance level at the time of writing the analysis, waiting for anything new.

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Sterling rose in what was a booming market for risk assets and a hostile environment for the US dollar last week, but was unable to overcome a double layer of technical resistance around 1.2174 on the charts and could now struggle to advance further in the coming days. This was due in part to developments in China over the weekend where fresh turmoil over the latest round of coronavirus-related restrictions is likely to keep financial markets focused on the heavy economic costs of the government's continued attempt to contain the virus.

That would be a damper on risk appetite in global financial markets and something that could put the pound-dollar rate on its back foot early this week. Lee Hardman, FX Analyst at MUFG, wrote in a market commentary that“Fed Chair Powell is expected to push back also this week against the recent easing of financial conditions. It should encourage the US dollar to rebound after the heavy sell-off this month.”

While developments in China are likely to set the mood around the opening of the week, Wednesday's speech from Federal Reserve Chair Jerome Powell and the release of the November non-farm payrolls report on Friday will be the most important for GBPUSD's rate outlook. Accordingly, Joseph Capurso, Head of International Economics at the Commonwealth Bank of Australia, says that“The pound sterling is currently trading near its highest level in three months due to the recent decline in the price of the US dollar and the decrease in political uncertainty in the United Kingdom.”

'FOMC Chairman Jerome Powell may push market participants to reassess the global economic outlook because he is likely to talk about the need for tighter financial conditions,' he added

Some analysts are eyeing a rally in sterling during the first half of the week, but they warn that the pound and other currencies could lose ground from Wednesday if Jerome Powell succeeds in reviving an earlier rally in US bond yields or if his remarks lead financial markets to avoid assets. There is a significant risk, or chance, that Fed Governor Powell on Wednesday will squander the market glut that has led to dollar selling in favor of riskier currencies in the weeks since official figures indicated earlier in November that US inflation rates have eased again in the past year.GBP/USD Forecast

GBP/USD price formed slightly higher lows and higher highs inside the rising wedge pattern seen on the four-hour time frame. The price is currently testing the resistance and may be due to pull back to the support level. The bottom of the wedge is around the 1.2000 major psychological mark, which is aligned with the 100 SMA dynamic inflection point. This is above the 200 SMA to confirm that the general trend is still bullish and that the support is more likely to hold than to break out.

Stochastic is still pointing lower to show that selling pressure is present, and the oscillator has room to slip before reaching oversold territory to indicate exhaustion. And the RSI has more room to cover before reaching the oversold zone, so the selling momentum can continue for a while longer. A break below wedge support could lead to a drop that is as high as the chart formation. Likewise, any move past wedge resistance can trigger a sharper rally that is about the same size as the pattern.

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