- As we predicted and recommended, the GBP/USD pair sold off after its recent gains, which reached the resistance level of 1.2428, its highest level in nearly two months.
- Profit-taking selling quickly extended the pair towards the support level of 1.2262, and it is currently stabilizing around 1.2275 as of the writing of this analysis.
- Thus, this performance is awaiting statements from the governors of the Bank of England and the US Federal Reserve today.
Waiting for Bailey's Statement
Later today at 09:30, Bank of England Governor Andrew Bailey will speak at the Irish Central Bank's “Financial System Conference: Delivering Good Outcomes in an Uncertain World.” Also, Bailey will deliver the keynote address, followed by a Q&A session with other committee members. Therefore, it is likely that he will address the UK economy and interest rates at some point during his appearance in Dublin.
After last Thursday's interest rate decision, Bailey said in a media interview that he would have to "depend on" market developments following the Bank of England's decision made earlier in the day. Although, the bank announced that interest rates would remain at current levels for an extended period, expectations of interest rate cuts increased, leading to the first-rate cut being priced in full in September 2024. So, if Bailey backs down on these expectations, the pound may remain supported, and the downside for GBPUSD remains limited.
GBP/USD Trading Outlook
The GBP/USD exchange rate was unable to achieve significant progress beyond the main technical level, which is located slightly above the resistance at 1.24, and now risks a decline to 1.2250 in the coming days. Increased downward pressure does not rule out a move towards the support levels of 1.2150 and 1.2000, respectively, especially, if Fed spokespeople oppose the recent decline in US financial conditions. Meanwhile, GBP/USD rose to the 1.2428 resistance and touched the 200-day moving average (DMA) in the process. Also, Forex experts were watching it as a major test of the nascent GBP recovery, as there was a high probability that the rally would stop at this resistance point.
As we expected, the failure to break above the 200-day moving average, located at $1.2434, led to a sharp decline in the GBP/USD pair, especially since the pair recorded its best weekly performance in a year last week, with an increase of more than 2%. In general, the British pound will need to break the 200 DMA if we want to form a more positive outlook. A crossing above the 200 DMA near 12440-12460 would mean a bigger bounce towards the neckline of the H&S at 12610 and 12720 respectively.
In the long term, the direction of the GBP/USD pair will depend on the US dollar, which suffered a major sell-off after the US jobs report came in below expectations last Friday. Finally, these leading markets to increase bets that the Federal Reserve has now completed its cycle of US interest rate hikes and that rate cuts could be coming.
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