POUND STERLING TALKING POINTS
- UK Nationwide housing prices surprised to the upside but still paints a bleak picture overall.
- US data in focus next week.
- Rectangle breakout potential.
GBP FUNDAMENTAL BACKDROP
The British pound initially reacted favorably to better than expected housing prices (see economic calendar below) however, markets quickly turned negative as the realization that the UK housing market is slowing down both YoY and MoM respectively.
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Naturally, an environment with higher interest rates has been weighing down housing prices due to lesser demand from the UK public. Fears of a recession in the UK will likely limit pound upside in Q1 of 2023 especially if the housing market continues to deteriorate. The impact on GBP should theoretically be adverse with lesser housing demand resulting in softer inflation and a more dovish Bank of England (BoE). Should a recession ensue, the USD will then utilize its safe-haven appeal to attract investors away from the UK economy leaving cable exposed to subsequent downside.
ECONOMIC CALENDAR
Source: DailyFX Economic Calendar
TECHNICAL ANALYSIS
Introduction to Technical Analysis
Candlestick Patterns
Recommended by Warren Venketas
Chart prepared by Warren Venketas, IG
The 4-hour GBP/USD chart shows price action remaining within the evolving rectangle pattern (pink) sandwiched between the 1.2000 and 1.2100 psychological levels. There has been no real conviction away from the 200-day SMA (blue) either but the first week of 2023 holds some high impact U.S. data including ISM PMI’s, FOMC minutes and Non-Farm Payrolls (NFP) which could provide the catalyst to breakout from the consolidatory pattern currently underway.
Key resistance levels:
- 1.2154
- 1.2100
- 200-day SMA
Key support levels:
- 1.2000
- 1.1900
BULLISH IG CLIENT SENTIMENT
IG Client Sentiment Data (IGCS) shows retail traders are currently LONG on GBP/USD, with 53% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning we arrive at a short-term upside bias.
Contact and followWarrenon Twitter:@WVenketas
