GBP/USD Trades Choppy – Why 1.2420 Could Weigh on Sterling
GBP/USD has been trading in a tight range above 1.2300 on Wednesday after closing the first day of the week virtually unchanged. The British
GBP/USD has been trading in a tight range above 1.2300 on Wednesday after closing the first day of the week virtually unchanged. The British pound is struggling to capitalize on risk flows, implying that the pair remains vulnerable as the market valuation of the dollar dominates pricing action.
The decline in the benchmark 10-year US Treasury bond yield aided GBP/USD in limiting its losses on Monday. In the absence of high-quality macroeconomic data, comments from Fed officials kept US yields and the dollar under pressure.
Atlanta Fed President Raphael Bostic pushed back against rate hikes of 75 basis points, noting signs that inflation may have peaked. Similarly, Minneapolis Fed President Neel Kashkari stated that he is confident that inflation will fall to the Fed’s target of 2%.
In contrast, Bank of England (BOE) policymaker Michael Saunders stated that he would prefer the policy to quickly shift to a neutral stance due to increased risks of inflationary pressures becoming more persistent than expected. Nonetheless, the 10-year UK government bond yield is down more than 3% early Tuesday, making the British pound even more difficult to find demand for.
Although the mood in the market appears to be improving on Tuesday, with the UK’s FTSE 100 Index rising 0.7 percent, the S&P Futures are down 2.1 percent, implying that a risk rally is still a long way off. On the other hand, if Wall Street’s main indexes begin the day in positive territory after Monday’s heavy selloff, the dollar may weaken against its rivals.
In short, the fundamental outlook and the fragile risk perception should continue to limit GBP/USD recovery efforts and limit any upward moves to technical corrections.
GBP/USD Technical Outlook
Since the morning, the GBPUSD pair has been trading sideways and has settled around 1.2340, indicating no change in the bearish trend scenario, which is dependent on price stability below 1.2410, organized within the bearish channel, which supports the chances of moving towards our next main target at 1.2200.
The trading range for today is expected to be between 1.2270 and 1.2440.
Resistance
On the upside, the first resistance is at 1.2370 (static level, descending trend line), followed by 1.2400 (psychological level) and 1.2450.
Support
On the other hand, a four-hour close below 1.2300 (psychological level) could increase bearish pressure and drag the pair toward 1.2250 (static level from June 2020) and 1.2200. Good luck!
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