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Bulls and Bears Focus on the Contest for the Head and Shoulders Bottom, but Recovery Will Be Very Long
Summary:
Since mid-June, the GBPUSD has been steadily falling. At present, the downward trend seems to have slowed down because the momentum indicator is oversold. Whether the price can rebound remains uncertain.
CLOSED
1.23300
Opening Price
1.27000
TP
1.22680
SL
1.22342 -0.00602 -0.49%
620
Point
Loss
1.22680
SL
1.22670
Closing Price
1.23300
Opening Price
1.27000
TP
Fundamentals
The Bank of England's (BOE) inflation survey in August revealed how the public viewed the inflation trend and what the BOE might do.
The public's view of the current inflation rate seems to have eased, and the median estimate is 8.6%. This is a full percentage point lower than 9.6% in May. This shows that the public may think that the worst period of soaring inflation has passed.
However, expectations for short-and medium-term inflation have risen slightly. The median inflation expectation for next year is 3.6%, slightly higher than 3.5% three months ago. Looking further ahead, it is expected to rise from 2.6% in the last survey to 2.8% in the next 12 months.
Regarding the BOE's policy path, 63% of people expect it to raise interest rates next year, up from 57% in May. At the same time, 19% said they expected rates to stay about the same over the next year, which is slightly lower than the previous 20%.
Before the release of August inflation data in the UK, traders lowered their bets on the BOE's further tightening policy. Traders' expectations of the BOE's further rate hike are less than 37 basis points, suggesting that the market is basically evenly divided in the expectation of a second rate hike of 25 basis points during the year.
According to the median expectation of more than 30 analysts surveyed by the agency, the UK inflation data due to be released on Wednesday may show that the inflation rate rose to 7% last month from 6.8% in July. The core inflation rate, which is closely watched by officials and excludes food and energy, is expected to drop by 0.1 percentage points to 6.8%. The market's expectation for this week's interest rate hike is about 22 basis points, suggesting that the market generally expects to raise interest rates by 25 basis points. At the same time, the UK market is facing quite a few challenges this week. If the BOE follows the ECB's "dovish rate hike", it will put pressure on the GBP and increase the price pressure on the margin.
At present, the intraday price trend of the GBPUSD shows some signs of relative strength. In the 4H timeframe, a long lower shadow is formed, and the resistance level of 1.24 needs to be clearly broken in the later period to show whether the GBPUSD has bottomed out successfully.
Technical Analysis
The GBPUSD has been forming a structure of declining highs since breaking below the late June low of 1.2591.
Currently, the Relative Strength Index is hitting the oversold threshold of 30 and the Stochastic Oscillator is in the 20 oversold zone, both indicators suggesting that the recent downtrend may have been overdone.
If the bulls reappear and push up the price, the GBPUSD may face the suppression of the 1.2440 resistance level, which was a support level in early September. The next resistance level is the supply range of 1.2485, and breaking through this range may trigger further recovery momentum. Even higher, the bulls may test the final target level of 1.2684, but any subsequent rise should be limited below 1.2747 to maintain the decline pattern (in a big cycle) after falling below the 200-day SMA.
On the other hand, the May bottom at 1.2307 could become the first line of defense if the downward momentum is extended. If it breaks below that level, the price could slide further towards the 1.2000 psychological barrier. If the bottom collapses, the focus could turn to the March low of 1.1800.
Overall, the GBPUSD downward momentum has not been completely exhausted, but with the GBPUSD having reached oversold conditions, a rebound should therefore not be ruled out as imminent. It is recommended to buy the dips.
Trading Recommendations
Trading direction: Long
Entry price: 1.2330
Target price: 1.2700
Stop loss: 1.2268
Deadline: 2023-10-03 23:55:00
Support: 1.2370, 1.2307, 1.2275
Resistance: 1.2447, 1.2505, 1.2548
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Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.
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