- It is possible that the pound sterling will remain supported against the US dollar in the coming days as technical indicators indicate that the selling operations witnessed in recent weeks have been exhausted, but statistics from the US Federal Reserve, the Bank of England, and the US Labor market constitute the main obstacles to any significant recovery for the currency pair.
- For five consecutive trading sessions, the GBP/USD currency pair moved in a narrow range between the level of 1.2175 and the support level of 1.2069, and stabilized around the level of 1.2150.
- Technically, this performance portends a strong upcoming move.
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British Pound Still Bearish
Overall, the pound/dollar exchange rate appears to have good support above the 1.20 level, as bounces below 1.21 last week found buying interest, and this level could continue to act as a solid floor of support over the coming days. In this regard, Sean Osborne, senior forex analyst at Scotiabank, says: “The rebound of the pound sterling from levels below 1.21 yesterday expands the pattern of strong support for the pound below the number we have seen during the month of October so far.” Also, he added that the trading pattern around the recovery from last week's lows is bullish from a technical point of view, but the lack of follow-up leaves gains stalled.
Over the coming days, foreign exchange markets will remain focused on Middle East risks, especially regarding any Iranian military flexibility in the region. However, the main channel of financial market pressure is crude oil prices, which tend to rise due to heightened tensions. The rule, The rise in oil prices consequently as its linked to the strength of the US dollar.
Turning to the calendar of data and events, the barrier to further US dollar strength appears to be high, with a growing number of analysts believing that it will take a big report on US payrolls and an unexpectedly “hawkish” Federal Reserve to push the currency higher. Clearly, this high barrier would enhance the ability of the British pound price to maintain the above-mentioned support levels and limit the scope of any downward trend.
The first major test for the US dollar comes on Wednesday with the release of the ISM manufacturing survey at 15:00 GMT, as markets look for more signs of the US economy's resilience. The forecast is set for a reading of 49, although uncertainties will reach maximum given the recent trend of strong data results. At 19:00 GMT, the Federal Reserve will issue its final decision on the US interest rate, which is widely expected to be no change. The market-moving element of this event will be guidance regarding a possible interest rate hike in December. If the market price again raises the interest rate, the US dollar may advance. In general, the key to December's decision will be the US Labor market report on Friday, as the market prepares for a non-farm payroll reading of 172,000 for October and an unemployment rate of 3.88%.
For the pound, the focus will be on the Bank of England's decision on Thursday, as the weak economic backdrop suggests the bar to another hike is high. This is fully appreciated by the market and with the Fed also commenting, we expect the GBP/USD theme to remain range-bound in this week's trading.
Also, The Bank of England represents the most important event this week for the British pound, and the risks associated with the event are likely to limit any strength in the currency. Investors can choose to reduce their exposure to sterling in the run-up to Thursday's decision. Meanwhile, this decision is likely to leave interest rates unchanged at 5.25%. Overall, policy decisions by the Bank of England have tended to undermine sterling in the current lifting cycle, with policymakers tending to err on the cautious side.
This cautious reaction function may therefore lead to the Bank inadvertently giving the green light to market participants to submit interest rate cut expectations, which could affect the pound.
GBP/USD Trading Outlook
There is no change in my technical view of the performance of the price of the British pound against the US dollar GBP/USD as the general trend. According to the performance on the daily chart below, the GBP/USD remains bearish, and as we mentioned before, the movement around and below the support level of 1.2150 will support the stronger movement of the bears towards the psychological support level of 1.2000, respectively. However, this is an area sufficient to push technical indicators towards strong oversold levels. On the other hand, over the same period, there will be no opportunity for bulls to control performance without moving towards the resistance levels of 1.2330 and 1.2450, respectively. Obviously, this may only happen if investors return to risk appetite and the US job numbers and the US Central Bank’s policy statement calm the pace of US interest rate hikes.
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