Consolidating below 1.3100 and YTD peak, bullish potential intact

VaselineAugust 22, 2024

0 3 minutes read

Consolidating below 1.3100 and YTD peak, bullish potential intact

GBP/USD bulls turn cautious amid USD buying on Thursday.
Divergent BoE-Fed policy expectations could continue to support the pair.
The technical setup calls for caution for the bulls and before positioning for further gains.

GBP/USD is trading in a narrow band during the Asian session on Thursday and remains at a distance from the July 2023 high around the 1.3120 area reached the previous day. Spot prices are currently trading around the 1.3085 region, largely unchanged for the day, as traders now look to UK and US flash PMIs for near-term opportunities.

Meanwhile, a modest rise in US Treasury yields is helping the US dollar (USD) recover a bit from its YTD low hit on Wednesday. This, in turn, is seen as a key factor acting as a headwind for the GBP/USD pair, although the declining chances of another rate cut by the Bank of England (BoE) in September provide some support . In addition, increased bets for more aggressive policy easing by the Federal Reserve (Fed) should limit gains for the dollar and help limit losses for the currency pair.

From a technical perspective, this week’s sustained breakout through the psychological 1.3000 mark and a subsequent move beyond the previous YTD peak around the 1.3045 region was seen as a new trigger for bullish traders. That said, the oscillators on the daily chart have moved to the point of entering the overbought zone, making it prudent to wait for a short-term consolidation or modest pullback before positioning for any further appreciation moves. However, the trend remains firmly tilted in favor of bulls.

Therefore, any further slip to the 1.3050-1.3045 region could be seen as a buying opportunity and remains cushioned near the 1.3000 round figure. The latter should act as a key pivotal point which, if decisively broken, could trigger some technical selling and pull GBP/USD to the next relevant support near the 1.2950 area en route to the 1.2900 threshold. Failure to defend the mentioned support levels could suggest that spot prices have been exceeded in the short term and open the way for a significant corrective decline.

On the other hand, the 1.3120 area, or the YTD high reached on Wednesday, could act as an immediate obstacle ahead of the 2023 swing high near the 1.3140 region. Some further buying will reaffirm the constructive setup and set the stage for an extension of the strong uptrend recently seen in the last two weeks or so. GBP/USD could then look to break above the 1.3200 round figure and test the 1.3225-1.3230 resistance zone.

GBP/USD Daily Chart

fxsoriginal

Frequently Asked Questions for Pounds Sterling

The British pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit in the world, accounting for 12% of all trades, averaging $630 billion per day as of 2022. Its key trading pairs are GBP/USD, aka “Cable”, which represents 11% of FX, GBP/JPY or “The Dragon” as it is known to traders (3%) and EUR/GBP (2%) . The pound sterling is issued by the Bank of England (BoE).

The most important factor influencing the value of the pound sterling is the monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its main objective of “price stability” – a steady inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the BoE will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low, it is a sign that economic growth is slowing. In this scenario, the BoE will consider cutting interest rates to reduce credit so that companies borrow more to invest in growth-generating projects.

Data releases measure the health of the economy and can affect the value of the pound. Indicators such as GDP, manufacturing and services PMI and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment, it may encourage the BoE to raise interest rates, which will directly strengthen the GBP. Otherwise, if the economic data is weak, the pound is likely to fall.

Another significant release of data for the pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports in a given period. If a country produces highly sought-after exports, its currency will only benefit from the additional demand created by foreign buyers looking to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

VaselineAugust 22, 2024

0 3 minutes read

GBP/USD Daily Chart

Frequently Asked Questions for Pounds Sterling

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