POUND STERLING ANALYSIS & TALKING POINTS
- Weaker USD and Chinese hopefulness buoying GBP in early trade.
- BoE terminal rate expectations drop below 6%.
- Pound consolidation before further deterioration?
GBPUSD FUNDAMENTAL BACKDROP
The British pound is attempting a revival after 7 consecutive negative closes against the US dollar after the DXY is trading marginally lower today. Today’s move has little to do with any UK specific factors and will be the case throughout the week as the US takes over with multiple high economic data releases including the FOMC interest rate announcement. Today’s schedule will focus on the US CB consumer confidence release that is expected to push higher for the 4th month in a row and would be the highest level since January 2022, leaving cable exposed to the downside should actual figures fall in line or above estimates.
GBP/USD ECONOMIC CALENDAR (GMT +02:00)
Source: DailyFX Economic Calendar
From a UK perspective, the Bank of England (BoE) interest rate forecasts have been ‘dovishly’ re-priced coming down from a peak above 6% to 5.8% in February/March 2024 at the time of writing. This has weighed negatively on sterling and exacerbated by the weak PMI data yesterday. In addition, high government debt has not helped the nation as UK debt is significantly higher than both the US and eurozone.
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BANK OF ENGLAND INTEREST RATE PROBABILITIES
Source: Refinitiv
Chinese optimism around additional stimulus has seen a short-term move away from the greenback while augmenting pound strength but this may be short-lived as no action has been implemented just yet.
TECHNICAL ANALYSIS
GBP/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Price action on the daily cable chart above shows levels around the 1.2848 swing support handle with the Relative Strength Index (RSI) lingering at the midpoint region thus favoring bullish nor bearish momentum short-term. That being said, fundamentals tend to favor additional weakness unless the Fed decides to maintain/cut rates or providing extremely dovish guidance with a 25bps hike (priced in). A test of trendline support (black) is plausible if market expectations come to fruition and with recessionary fears gaining traction, the USD may be the safe haven call investors make.
Key resistance levels:
- 1.3000
- 1.2900
Key support levels:
- 1.2848
- Trendline support
- 1.2680
BEARISH IG CLIENT SENTIMENT (GBP/USD)
IG Client Sentiment Data (IGCS) shows retail traders are currently neither short or long on GBP/USD with 50% of traders holding short and 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 downside bias.
Contact and followWarrenon Twitter:@WVenketas
