GBP/USD Surrenders 1.15 Confluence Area, Short-Term Upside Remains a Possibility
- GBP/USD Surrenders the Key Confluence area around 1.1500.
- Broad-Based Dollar Weakness and Improving Sentiment Could Push the Pair Higher Ahead of Thursday’s US Inflation Data.
- Cable Remains Under Pressure Long-term as the Economic Outlook Remains Grim.
GBP/USD Fundamental Backdrop
Cable has started the day on the back foot against the greenback surrendering the key confluence area around 1.1500. This sour start to the day comes on the back of a reported slowdown in sales in the UK as consumers prioritize essential purchases. The figures came courtesy of a report by the British Retail Consortium with the group noting a shift in spending behavior as the busy holiday season approaches.
Cable enjoyed gains of around 3% against the greenback over the previous two sessions yet the slowdown in sales provides further indication of the challenges ahead. Cable is being helped by a weaker dollar to start the week as the greenback struggles to hold on to early session gains.
Bank of England Chief Economist Huw Pill commented that the central bank has been trying to give a more realistic view as to where rates are heading while warning that more rate hikes are needed. Pill stated that risks in the UK are tilted towards higher inflation moving forward while confirming that rate hikes will be driven by the economic outlook.
US Dollar Index, Daily Chart- November 8, 2022
Markets have seen a slight increase in risk appetite since Friday as rumors continue to swirl around a potential re-opening in China. This in part could be the reason for the greenbacks slump. There remains little in the form of major economic releases from the UK this week with the main risk event the US Inflation numbers due out on Thursday.
Given the lack of data there is a real possibility cable could benefit from broad-based dollar weakness heading into Thursday’s CPI release. This could see GBP/USD reclaim the 1.1500 area and make a run for September highs resting at the 1.1750 area.
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GBP/USD Daily Chart – November 8, 2022
From a technical perspective, the pair has struggled to make any significant headway above the 1.1500 confluence area. Daily timeframe price action does hint at a further push higher as the pair has printed higher highs and higher lows. However, moves have largely been riven by economic data of late and a return of dollar strength could see the pair shift bearish once more. There remains significant support for the pair around the 1.13750-1.14000 area which lines up with the 20 and 50-SMA.
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Written by: Zain Vawda, Markets Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.