POUND STERLING ANALYSIS & TALKING POINTS
- UK CPI expected to come in hotter, exacerbating inflationary pressures.
- Market pricing may be overkill leaving room for a GBP correction.
- Overbought signal on cable could point to a pound selloff.
GBPUSD FUNDAMENTAL BACKDROP
The British pound has held on to it’s gains from last week, despite being marginally weaker against the US dollar. This comes on the back of a hawkish rhetoric surrounding the Bank of England (BoE)’s upcoming interest rate decision (see economic calendar below). Recent robust jobs data and elevated inflation levels will most likely keep the 25bps increment on the table regardless of what happens with UK CPI. Money markets are currently pricing in a 73% chance of a 25bps hike alongside roughly 125bps of cumulative rate hikes for 2023. This may be slightly too optimistic considering global recessionary fears and may angle cable for a leg lower.
BANK OF ENGLAND INTEREST RATE PROBABILITIES
Source: Refinitiv
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From a USD perspective, Fed chair Jerome Powell is scheduled to testify at the US Senate Banking Committee and will surely drive some market volatility in what is a relatively quiet week for US data.
UK ECONOMIC CALENDAR (GMT +02:00)
Source: DailyFX Economic Calendar
TECHNICAL ANALYSIS
GBP/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Price action on the daily cable chart above has GBP/USD hovering around a long-term key area of confluence surrounding the 1.2813 level. The Relative Strength Index (RSI) is well into overbought territory and with Friday’s long upper wick candlestick, the technical analysis assumption may point to a pullback lower. Upcoming UK CPI may miss estimates which could result in the aforementioned downside move. A bullish extension on he other hand may arise from sustained inflation levels possibly opening up the 1.2900 psychological handle.
Key resistance levels:
- 1.2900
- 1.2813
Key support levels:
- 1.2680
- 1.2584
MIXED IG CLIENT SENTIMENT
IG Client Sentiment Data (IGCS) shows retail traders are currently net SHORT on GBP/USD with 69% of traders holding short 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 a at a short-term cautious disposition.
Contact and followWarrenon Twitter:@WVenketas
