- GBP/USD witnessed a reversal from the top end of a two week long descending channel.
- The dollar rose to a new two-decade high and was seen as a key pressure factor.
- A sustained break below the low of a year ago would set the stage for a drop towards 1.1800.
The pair GBP/USD stalled on last week’s bounce from the 1.1875 region, or its lowest level since March 2020, and witnessed a reversal from a downtrend channel resistance two weeks ago. The aforementioned barrier, currently around the 1.2035-1.2040 region, is approaching the 50-period SMA on the 4hr chart and should act as a sweet spot for short-term traders.
Against the backdrop of expectations of a more aggressive tightening of monetary policy by the Federal Reserve, the prevailing risk-off mood has lifted the safe-haven US dollar to a new high of two decades. On the other hand, Brexit woes and speculation that the Bank of England would take a gradual approach to raising interest rates continued to weigh on sterling. This, in turn, sparked fresh selling around the GBP/USD pair on the first day of a new week.
Market participants are now awaiting Bank of England Governor Andrew Bailey’s testimony before the Treasury Select Committee, which could weigh on the British pound and give GBP/USD some momentum. The market will then focus on the UK’s monthly GDP release and the latest US consumer inflation figures due on Wednesday.
Meanwhile, a follow up of the selling below the 1.1900 mark, which would lead to a subsequent break of the yearly low around the 1.1875 region, would be seen as a new trigger for bearish traders. This, in turn, would set the stage for a drop towards the key round 1.1800 level, or the lower end of the aforementioned channel.
On the other hand, the 1.1940-1.1950 area seems to act as an immediate resistance before the key psychological level 1.200. Any further move to the upside could continue to face strong resistance and be capped near the uptrend channel barrier, which if breached would suggest that GBP/USD has formed a short-term bottom.
Follow-up buying beyond the 50-period SMA on the 4-hour chart should allow GBP/USD to reclaim the round 1.2100 level again. The momentum could extend further and push the pair towards testing the next relevant resistance near the 1.2175-1.2185 offer zone on the way to the 1.2200 level.
GBP/USD 4-hour chart
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Technical levels
Source: Fx Street
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