Chapter 27 05/09 GBPUSD: Higher Lows and Higher Record Highs Are Positive Signs of Continued Stronger Price
Abstract: Recently, the GBPUSD gained bullish momentum above the resistance level of 1.2500 and climbed to around 1.2660. The market is now waiting for the decision of the policy meeting of the Bank of England on Thursday. The probability of raising the interest rate by 25 basis points has been agreed by the market. What is uncertain is the forward-looking guidance of the Bank of England and the voting proportion.
Fundamentals
The GBPUSD has been on a steady upward trend and has recently successfully emerged from the box fluctuation pattern that has existed since November 2022. On the previous trading day, the GBPUSD recovered some of its gains after hitting an 11-month high of 1.2668; It is expected to continue to rise in the future, but the increase is limited.
The GBPUSD's rise was driven by lower wholesale gas prices in the U.K., a more stable U.K. banking sector relative to the U.S., and market speculation that the Federal Reserve will cut interest rates earlier and more sharply than the Bank of England.
Nevertheless, the GBPUSD's rally will not last. If we are correct in thinking that the U.S., U.K., and Eurozone will all fall into recession this year, then a surge in demand for the safer USD could mean a temporary drop back to around the 1.1200 range for the GBP before it continues to rally by the end of the year.
The Bank of England will raise interest rates by 25 basis points this week, and its new macroeconomic forecast may indicate that policy tightening is nearing its limit, although GBP's response is expected to be modest. The Bank of England is unlikely to oppose market expectations of further interest rate rises and maintain its data-dependent guidance. This means that the GBP will not fall too much.
Some observers believe that a further 50 basis points increase in interest rates may be needed to contain inflation. If so, it would widen the monetary policy divide between the Bank of England and the Federal Reserve, which would favor sterling because higher interest rates are expected to give the GBPUSD a "spread" advantage.
Overall, the GBPUSD appears to be able to stabilize above 1.2500 and could rise further to the range of 1.2650-1.2750 as downside risks to the USD remain.
Technical Analysis
The GBPUSD paused slightly after hitting a new 13-month high of 1.2668 on Monday but did not reach the expected peak.The market consensus for a 25-basis-point rate hike by the Bank of England is now reflected in GBP prices.Meanwhile, momentum indicators indicate that the near-term risk tends to be upward. Specifically, the RSI was flat above its neutral level of 50, while the MACD strengthened above the 0-axis.
If bullish pressure persists, bulls may continue to push prices higher; another break above the 1.2668 level would test the previous supply zone at 1.2782. while the psychological barrier at 1.3000 may prove to be a tough hurdle for bulls to overcome. Any further gains could be halted at the March 2022 peak at 1.3295.
On the downside, the main support is around the 50-hour SMA at 1.2600. There is also a key bullish trend line and a 50% Fibonacci retracement of 1.2557 - 1.2653.
If it falls below the 1.2600 support level, the GBPUSD could accelerate its decline. The next major support is around 1.2550 and 1.2500, below which the GBPUSD may return to 1.2440. Any further decline could lead the GBPUSD to a level of 1.2350.
Overall, the GBPUSD continued to rise in the short term, forming a structure of higher highs and higher lows. This is also a sign that prices continue to rise. However, a temporary downward correction should not be ruled out until the upward trend goes higher. It is recommended to buy the dips.
Trading Recommendations
Trading direction: Long
Entry price: 1.2600
Target price: 1.2865
Stop loss: 1.2349
Deadline: 2022-05-23 23:55:00
Support: 1.2514, 1.2418, 1.2350
Resistance: 1.2688, 1.2772, 1.2865
