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      GBPUSD: Break of 200-day SMA and Formation of Double-Top Pattern May Set Stage for Significant Sell-Off

      Inflation and RecessionRemarks of OfficialsForex Market
      Summary:

      The GBPUSD held steady below 1.1840. The market's bet on the Fed's more aggressive interest rate hike supported the USD and became a negative factor for the GBPUSD. The risk of an economic recession is beneficial to USD bulls and supports the prospect of further decline of major currencies.

      Sell GBPUSD
      End Time
      CLOSED

      1.18257

      ENTRY PRICE

      1.14150

      TGT PRICE

      1.21000

      SL PRICE

      1.23431 +0.00571 +0.46%

      2743

      Points

      Loss

      1.14150

      TGT PRICE

      1.21001

      CLOSING

      1.18257

      ENTRY PRICE

      1.21000

      SL PRICE

      Fundamentals

      On Wednesday, during the Asian and European sessions, the GBPUSD consolidated the previous day's heavy losses and traded in a narrow range around 1.1825, only a few points higher than the lowest level since November set earlier this Wednesday. Technically, it is still fragile below the important 200-day SMA.
      However, with the stock market showing signs of stabilization, USD bulls slowed after yesterday's strong rise to a three-month high. This, together with the extremely oversold Relative Strength Index (RSI) in the 1H timeframe, provided some support for the GBPUSD. Nonetheless, any meaningful recovery still seems unlikely to materialize with the Fed's bet to tighten more aggressively increasing.
      The market is now more likely to focus on a big 50 basis point rate hike at the Fed's FOMC policy meeting in March. On Tuesday, comments by Federal Reserve Chairman Jerome Powell appeared to validate the bet, suggesting that interest rates may need to be faster and higher than previously expected. Powell further added that the Federal Reserve is prepared to speed up the pace of interest rate hikes to combat stubbornly high inflation.
      Hawkish prospects still support higher yields on U.S. Security Treasuries, which, along with the looming risk of a recession, support the prospect of a further near-term rise in the safe-haven USD. The yield on the benchmark 10-year U.S. Security Treasuries remained stable near the 4.0% threshold, while the yield on the interest-sensitive two-year U.S. Security Treasuries was near its highest level since 2007, exacerbating concerns about the economic headwinds brought about by rapidly rising borrowing costs.
      In addition, the Bank of England’s (BOE) further interest rate hike has been reflected in the price, indicating that the path of least resistance for the GBPUSD is downward.
      Investors are now focusing on U.S. economic data released during the New York session, including the February ADP Private Sector Employment Report and the release of JOLTS Job Vacancy Data. All these data, along with broader risk sentiment, Powell's 2.0 testimony in the House Financial Services Committee, and U.S. Security Treasuries yields, should affect the USD and provide some meaningful boost to the GBPUSD.
      GBPUSD: Break of 200-day SMA and Formation of Double-Top Pattern May Set Stage for Significant Sell-Off_1

      Technical Analysis

      The GBPUSD recovered its downward trend from 1.3446 in February 2022 after falling below its 1.1914 support level, with a tendency to return downward during the day. A deeper drop would test a 38.2% Fibonacci retracement of 1.1646 to 1.0351. Strong support could rebound near that level. However, it needs to break through the 1.1914 level of support to change to the resistance level to confirm whether the temporary bottom can be established. At the same time, a firm break of bears above the 1.1645 level will have a greater bearish impact.
      From a broader perspective, yesterday's break below 1.1840 support suggests the formation of a double-top pattern (1.2445, 1.2446). A deeper decline should take us back to the 38.2% Fibonacci retracement of 1.0351 to 1.2446 at 1.1646. A sustained breakout would increase the likelihood of a trend reversal with a target of 61.8% Fibonacci retracement of 1.1151.
      Overall, after forming a double top in the range, the GBPUSD has been retraced steadily to below the 200-day SMA. The neckline of the pattern is currently being challenged, indicating the risk of further declines. It is recommended to go short at the highs.

      Trading Recommendations

      Trading direction: Short
      Entry price: 1.1820
      Target price: 1.1415
      Stop loss: 1.2100
      Deadline: 2022-03-22 23:55:00
      Support: 1.1764, 1.1711, 1.1647
      Resistance: 1.1840, 1.1914, 1.2068
      Risk Warnings and Investment Disclaimers
      You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or signal, or any other product is suitable for you based on your investment objectives and financial situation.

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      Eva Chen

      Analyst

      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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      Focus on

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