- GBP/USD posts a modest intraday recovery, but lacks follow-through.
- Dollar Demand Offers Support; political uncertainty in the UK limits increases.
- A move beyond the 1.1400 area is needed to support prospects for further gains.
The pair GBP/USD bounces a few points off the daily low and breaks back above 1.1300 during the early American session. The modest recovery is supported by the appearance of some US dollar selling, although it lacks bullish conviction amid UK political uncertainty.
In fact, rebels within the ruling Tory Party are banding together to replace the newly elected UK Prime Minister, Liz Truss, after the recent tax cut fiasco. Aside from this, reports that the Bank of England is going to delay further quantitative tightening to help stabilize bond markets act as a sterling headwind and cap GBP/USD.
Furthermore, the oscillators on the daily chart have struggled to gain traction, suggesting that any further move higher could face resistance near the 1.1400-1.1410 area. This is followed by the overnight high around the 1.1440 area, above which GBP/USD could rally to a monthly high just before the psychological signal at 1.1500.
The latter coincides with the 50-day SMA, which if broken decisively should pave the way for an extension of the recent recovery from an all-time low hit in September. GBP.USD could then accelerate the push towards the intermediate resistance of 1.1555-1.1560 before finally rallying to the 1.1600 mark.
On the other hand, the weakness below 1.1300 seems to find some support near the lows around the 1.1255 area. Some follow-up selling would expose the 1.1200 level, below which the GBP/USD could drop to the next relevant support near 1.1150. The latter should act as a support point for the pair.
Failure to defend the mentioned support levels will nullify any short-term positive bias and favor the bears again. The GBP/USD pair could then accelerate the decline towards the 1.1100 test and the 1.1055-1.1050 support zone.
GBP/USD daily chart
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Key levels to watch
Source: Fx Street
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