GBP/USD is 1.3404. This is symptomatic of a much more complex and profound tussle of competing market forces that has caused unprecedented pressure on the GBP/USD cross. Recent action indicates a change in underlying bias for the currency cross. In fact, it was on net downward pressure after some dovish comments by Bank of England policymaker Alan Taylor. During this week, GBP/USD touched a new four-week low close to 1.3360 on Thursday, conveying the message of the jittery market sentiment.
Traders are just now making sense of those technical indicators. They note that the 21-day Simple Moving Average (SMA) has just spiked up over the longer-term SMAs, with both the 50- and 200-day SMAs trending up. Meanwhile, the 100-day SMA has flattened, forecasting possible choppy trading in the days to come. This is a big reason why the US Dollar Index (DXY) recently shot up to a new six-week high of 99.50. Unfortunately, this increase complicates the GBP/USD outlook.
Technical Analysis of GBP/USD
Within the field of technical analysis, traders scour these SMAs in search of where prices might find support or resistance. The 200-day SMA now acts as the first line of immediate resistance at 1.3406. This price level is slightly higher than where it is currently trading at 1.3404. Once cleared, this may provide a path towards the ascending 21-day SMA seen at 1.3460.
If GBP/USD does reverse upward, look for the 100-day SMA at 1.3365 to hold resistance. This funding level is desperately needed support. The 50-day SMA is currently at 1.3335. This highlights just how important these moving averages are for determining the direction of future price action.
The Relative Strength Index (RSI) for GBP/USD is at 48, which suggests neutral market sentiment. Market participants are looking for any clues of a breakthrough in GBP/USD. If the RSI can make its way above the 50 level, this would be a sign of a stronger bullish trend.
Market Sentiment and Economic Indicators
As mentioned in the last TWI, Alan Taylor of the Bank of England has recently made some dovish-sounding comments. These issues have obviously driven GBP/USD sentiment throughout the market. Taylor’s remarks have generated concerns about the central bank’s future policy direction, prompting traders to reevaluate their positions. Investors are looking for clarity on the trajectory of inflation and interest rates. This uncertainty surrounding monetary policy has continued to keep the Pound under pressure.
The US Federal Reserve’s hawkishness about interest rates has been great support for the value of the US Dollar. As noted by various financial experts, “Independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve.” This claim further highlights the need for extremely purposeful and focused monetary policies that put economic integrity above political motivations.
Raphael Bostic’s assertion that “We need to stay restrictive because inflation is too high” reflects the Fed’s commitment to combating inflationary pressures. This commitment, bordered on fiscal zealotry, has made the Dollar implacable and provided the Dollar feat its current force against all other currencies including the once-robust Pound Sterling.
Future Outlook for GBP/USD
Moving forward, the direction of GBP/USD is unclear as traders look to technical levels and the wider economic landscape. Add to that the upward slope of the 200-day SMA, which provides solid support for a medium-term bullish bias. Still, the key resistance at 1.3406 complicates the path for any additional upside.
Breaking above this resistance level would likely ignite a new rally. We might then have to watch for a breakout in the direction of the next major SMA target around 1.3460. Any close below the key 1.3365 support level would likely trigger further bearish sentiment on the pair. This change can be a catalyst for increased market selling pressure.
Market participants will continue to scrutinize upcoming economic data releases and Federal Reserve communications for insights into future monetary policy shifts. As one analyst pointed out regarding the market’s current state:
“The consequence of the Fed setting interest rates based on its assessment of the public interest rather than the president’s preferences” – Jerome Powell