GBP/USD bulls moving in with eyes back to 1.1920/30s

  • GBP/USD bulls start to move in following a significant sell-off.
  • The price is correcting into an M-formation’s neckline on the 4-hour chart.

GBP/USD is pressured at around 1.1900, losing some 1% on the day following a higher move in the greenback that has sunk all ships. The US dollar gained 1% against a basket of six major currencies, reaching 108.191, the strongest since October 2002, DXY.

The expectation is that the Federal Reserve will continue to aggressively raise rates as it tackles soaring inflation which is supporting the currency ahead of this week’s US Consumer Price Index data. The Fed is expected to lift rates by 75 basis points at its July 26-27 meeting. Fed fund futures traders are pricing for its benchmark rates to rise to 3.49% by March, from 1.58% now.

The inflation data that is due on Wednesday is this week’s major US economic focus and economists polled by Reuters expect the index to show that consumer prices rose by an annual rate of 8.8% in June. For the UK, growth data will be important. Analysts at TD Securities expect Gross Domestic Product to fall for the third consecutive month as the cost-of-living crisis continues to weigh on household spending. ”We look for a 0.2% decline in services (mkt: +0.1%) and a 0.3% m/m fall in manufacturing (mkt: 0.0%). This would confirm our view that the UK essentially is already in a recession—even though erratics might save it from one in a technical sense.”

Bank of England Governor Andrew Bailey said on Monday that he thought the BoE’s most recent forecast for inflation, showing it was likely to fall sharply next year, remained valid.

“I always go into forecasts with an open mind, and that’s critical, but I think the basic fundamentals of that profile remain in place today,” the top central banker told lawmakers. ”Inflation was likely to be back at its 2% target in around two years’ time, he added.

Meanwhile, net short GBP positions have increased moderately last week counter to the recent trend. ”More political scandal had begun to descend on UK PM Johnson at the start of last week which culminated in his resignation. Looking ahead, hopes of a more coherent government are likely to mingle with uncertainties about the policies of Johnson’s successor, suggesting that GBP may lack direction near term,” analysts at Rabobank explained.

GBP/USD technical analysis

Friday’s London session lows of 1.1920 are in sight for the immediate future:

The price has pierced the round 1.1900 level, but the tied is turning which leaves the buys stops above vulnerable with the 38.2% Fibonacci in confluence with the neckline of the M-formation, Friday’s London sesison lows and a price imbalance in the hourly chart between the 1.1920/30s.

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