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GBP/USD stabilizes back above 1.2150 and hits a fresh daily high

  • GBP/USD gained strong positive traction on Monday and was supported by modest USD weakness.
  • The recent drop in US bond yields and a positive risk tone undermined the dollar’s haven.
  • Aggressive bets on the Fed rate hike coupled with recession fears should cap dollar losses and cap the pair.

The pair GBP/USD is experiencing some short covering moves on the first day of a new week and is taking advantage of Friday’s late recovery from the 1.1975 region, or the lowest level since June 14. The momentum is extending into the mid-European session and is taking the price to a new daily high, around the 1.2165 area in the last hour.

The recent decline in US Treasury bond yields, coupled with signs of stability in equity markets, have undermined the haven of the US dollar. This, in turn, is seen as a key factor acting as a tailwind for the GBP/USD pair. That said, a significant upside move still looks unlikely, which warrants caution on the part of the bulls.

Federal Reserve Chairman Jerome Powell last week reaffirmed market bets on more aggressive rate hikes and said the US central bank remains focused on controlling inflation. Powell added that the US economy is well positioned to handle a tougher policy. Also, growing recession fears should limit dollar losses.

On the other hand, the Bank of England is expected to take a gradual approach to raising interest rates amid the worsening economic outlook. Additionally, renewed tensions between the UK and the European Union over the Northern Ireland Protocol to the Brexit deal could deter sterling bulls from making aggressive bets.

The fundamental backdrop makes it prudent to wait for strong follow-on buying before confirming that GBP/USD has bottomed in the short term and positioning for further gains. Additionally, traders could be hesitant amid relatively low volumes due to the US holidays and awaiting key releases this week.

The minutes of the meeting of the Federal Open Market Committee (FOMC) will be published on Wednesday and on Friday the key data on employment in the United States. Investors will closely examine the FOMC minutes and the NFP report for clues on the Fed’s tightening path. All of this will influence the dynamics of the dollar price and give a new impetus to the GBP/ USD.

Technical levels

GBP/USD

Panorama
Last Price Today 1.2154
Today’s Daily Change 0.0055
Today’s Daily Change % 0.45
Today’s Daily Opening 1.2099
Trends
20 Daily SMA 1.2277
50 Daily SMA 1.2399
100 Daily SMA 1.2803
200 Daily SMA 1.3154
levels
Previous Daily High 1,218
Previous Daily Minimum 1.1976
Previous Maximum Weekly 1.2332
Previous Weekly Minimum 1.1976
Monthly Prior Maximum 1.2617
Previous Monthly Minimum 1.1934
Daily Fibonacci 38.2% 1.2054
Daily Fibonacci 61.8% 1.2102
Daily Pivot Point S1 1,199
Daily Pivot Point S2 1.1881
Daily Pivot Point S3 1.1786
Daily Pivot Point R1 1.2194
Daily Pivot Point R2 1.2289
Daily Pivot Point R3 1.2398

Source: Fx Street

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