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GBPUSD: Bulls Further Push Prices Higher Remains to Be Seen, Not Recommended to Chase Higher

Forex MarketInflation and RecessionNonfarm PayrollsCentral Bank Policy TrendsThe Fed
Summary:

GBPUSD extended previous gains above 1.2110 as risk-on sentiment declined. General weakness in the USD supported the pair as investors assessed Fed rate hike expectations and Bank of England comments on inflation.

Sell GBPUSD
End Time
CLOSED

1.22000

ENTRY PRICE

1.17600

TGT PRICE

1.24500

SL PRICE

1.23959 +0.00048 +0.03%

1709

Points

Loss

1.17600

TGT PRICE

1.23709

CLOSING

1.22000

ENTRY PRICE

1.24500

SL PRICE

Fundamentals

GBPUSD built on the rally from Friday (six-week lows solid) and gained strong traction for the second day in a row. This momentum pushed spot prices to fresh two-and-a-half-week highs, taking the pair to the 1.2170 level in the first half of the European session, supported by a general selling bias in the U.S. dollar.
On Monday, the U.S. Dollar Index hovered near its monthly lows and came under pressure from a variety of factors. These included Friday's mixed U.S. December non-farm payrolls report (NFP) and a disappointing U.S. services PMI, sparking speculation that the Fed will soften its hawkish stance. Indeed, the market is now digesting expectations of a 25 basis point Fed rate hike in February, which would lead to a further decline in U.S. Treasury yields. On top of that, the positive risk tone further weakens the U.S. dollar's relative safe-haven status and provides additional support for GBPUSD.
Nonetheless, we still expect that the pound may continue to weaken. This is because the sluggish fundamentals of the UK economy may mean that the Bank of England will cut interest rates this year. While the Bank of England has good reason to suggest further rate hikes to reinforce its "hawkish" tone in a tight labor market, there have been various indications over the last year that it has failed to boost the pound due to weak investment growth, low productivity, and ongoing Brexit uncertainty. This is particularly the case if markets start to weaken previous expectations that the Fed may cut rates and the Bank of England is becoming more cautious.
GBPUSD: Bulls Further Push Prices Higher Remains to Be Seen, Not Recommended to Chase Higher_1

Technical Analysis

The GBP continued to benefit from rising expectations for a more moderate Fed on Friday as U.S. labor data further suggested the central bank would ease the pace of policy tightening further, increasing the likelihood of a 25 basis point rate hike at the next meeting and lowering expectations for a 50 basis point hike.
The GBP rose 1.6% on Friday, its biggest one-day gain since Nov. 10, with a bullish engulfing pattern formed in the daily chart and initial bullish signals emerging.
In Monday's trading, the bulls touched their highest point since Dec. 21 and broke through the 50% Fibonacci retracement level of 1.2446/1.1841 at 1.2144, suggesting that higher lows will form at 1.1840 and 1.1950.
While the rapid upward trade seems clear ahead of schedule, it remains to be seen whether it will build enough momentum to reach 1.2270. On the downside, a break below 1.1950 would indicate that the GBP will not strengthen further. It is recommended to go short at highs.

Trading Recommendations

Trading Direction: Short
Entry Price: 1.2200
Target Price: 1.1760
Stop Loss: 1.2450
Valid Until: 2023-01-23 23:55:00
Support: 1.2100, 1.2072, 1.2044, 1.2012
Resistance: 1.2174, 1.2215, 1.2241, 1.2304
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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480

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Focus on

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