- Before the end of last week’s trading, the GBP/USD exchange rate retreated from its highest levels in nearly two months, after it felt frustrated with the dollar’s rebound.
- This has so far prevented a third attempt by the pound to overcome the looming major technical resistance level.
- The gains of the GBP/USD currency pair sterling against the dollar last week reached the resistance level of 1.2343, before it retreated on Friday to the support of 1.2190, and closed trading around the level of 1.2230.
The pound sterling fell against the broadly stronger US dollar, Japanese yen and Swiss franc on Friday while rising against its other G10 counterparts as financial markets turned their attention to a major German investment bank. This was barely a week after speculation about Credit Suisse's future prompted the Swiss government to force a merger with UBS and comes in the early stages of a Fed investigation into the Silicon Valley bank's failure, which has led to other companies failing or otherwise distressed.
For his part, Jerome Powell, President of the US Federal Reserve, said last Wednesday, “The management of the Silicon Valley bank has failed miserably. The bank has grown very quickly. They exposed the Bank to significant liquidity and interest rate risks. This risk has not been hedged.” He added, “We know that SVB has witnessed unprecedented, rapid and massive bank management. So this is a very large group of depositors connected, a concentrated group of depositors connected in a very, very fast cycle. faster than the historical record suggests.”
Dollars were broadly bought during most of Friday, including after S&P global purchasing managers' index surveys suggested that sluggish conditions in the US manufacturing and service sectors may have given way to a rebound in March. This was after Census Bureau data earlier indicated that business investment in transportation items such as aircraft fell more than expected in February and by more than previously thought in January, while other forms of business investment barely grew at all.
Earlier in the session, S&P Global Purchasing Managers' Index surveys indicated that a rebound in growth in Britain in February had lost momentum in March and just hours after the Office for National Statistics reported that retail sales had built on an upwardly revised 0.9% increase in January. With a rise of 1.2% in February. UK retail sales figures were much stronger than expected by the economist consensus, but were overlooked in risk-averse global market conditions that saw many analysts focus on the US and European banking sectors at the expense of risky assets and most currencies other than the dollar.
Commenting on the performance of the currency pair. “Not much damage to the setup on the GBP/USD charts, these are more weekly trend reversals than large breakouts to the downside,” says Brad Picktel, FX Currency Analyst at Jefferies. There is MA support just below the 1.2148 area where we find the 50dma.” The BoE gave us a rally yesterday with a couple of opponents similarly positioned as the Fed on their hawkish path, leaving the ECB as the only bank still going in this direction. One might suspect that the Euro should outperform in this world as long as spreads are fixed there but it's hard to put them firmly in when you get these sudden and massive reversals out of nowhere.”
The price action on Friday comes after the Bank of England raised the bank interest rate from 4% to 4.25% last Thursday and linked its expectations to the results and effects of inflation on emerging economic data in the coming months. Previously, the Fed raised the US interest rate to between 4.75% and 5%, but also released the FOMC's economic forecast indicating that only one increase in US borrowing costs is likely before the end of the year.
Technical forecasts for the British pound against the dollar:
On the near term, according to the performance of the hourly chart, it appears that the GBP/USD is trading within a bearish channel formation. This indicates a significant short-term bearish bias in market sentiment. Therefore, the bears will be looking to extend the current declines towards 1.2199 or below to the support 1.2177. On the other hand, the bulls will be looking to pounce on profits around 1.2233 or higher at the resistance at 1.2254.
On the long run, and according to the performance on the daily chart, it appears that the GBP/USD is trading within a sharp bullish channel formation. This indicates a strong long-term bullish bias in market sentiment. Therefore, the bulls will be looking to pounce on higher gains at around 1.2335 or higher at 1.2445. On the other hand, the bears will target long-term profits at around 1.2105 or below at the support at 1.1988.
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