POUND STERLING ANALYSIS & TALKING POINTS
- Elevated US Treasury yields buoy dollar.
- US economic data under the spotlight later today.
- GBP/USD trades within the oversold zone of the RSI.
GBPUSD FUNDAMENTAL BACKDROP
The British pound sell-off has not stopped post-Bank of England (BoE) and FOMC announcements respectively. The hawkish slant to the Fed’s rate decision of keeping interest rates higher for longer, supplemented by Fed speakers (Kashkari). US 10-year Treasury yields subsequently reached 16-year highs placing additional pressure on cable.
Last week’s miss on UK retail sales and services PMI’s (flash) show signs of a slowing economy particularly after the recent insipid GDP figures. Higher rates are clearly taking its tole on the consumer while global recessionary fears are weighing negatively on the pound. JPMorgan CEO Jamie Dimon added to these concerns highlighting the potential fragility of the US economy should rates reach extreme levels. Stagflation is becoming a real concern for the UK as inflation remains elevated while growth is declining – in stark contrast to the US where growth remains robust.
BoE rate probabilities (see table below) now sees money markets forecast 14bps of additional rate hikes from roughly 23bps just last week. This dovish repricing is limiting GBP bulls from clawing back recent losses against the greenback.
BANK OF ENGLAND INTEREST RATE PROBABILITIES
Source: Refinitiv
The economic calendar today will keep the US in focus with more Fed speak, housing data and CB consumer confidence (see economic calendar below). It will be interesting to see whether new home sales ticks higher in August as well as if the Fed’s Bowman continues with the aggressive outlook following on from Neel Kashkari.
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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 now dipped below the 1.2200 psychological handle for the first time since March. The pair is well into oversold territory as measured by the Relative Strength Index (RSI) but does not mean a breakdown towards 1.2000 is off the table.
Key resistance levels:
- 1.2500
- 200-day moving average (blue)
- 1.2308
- 1.2200
Key support levels:
- 1.2000
MIXED IG CLIENT SENTIMENT (GBP/USD)
IG Client Sentiment Data (IGCS) shows retail traders are currently net LONG on GBP/USD with 71% of traders holding long positions (as of this writing).
Download the latest sentiment guide (below) to see how daily and weekly positional changes affect GBP/USD sentiment and outlook!
Introduction to Technical Analysis
Market Sentiment
Recommended by Warren Venketas
Contact and followWarrenon Twitter:@WVenketas
