British Pound Outlook: GBP/USD In Consolidation Mode

GBP/USD is slightly higher on Monday, up 0.2% to 1.2302, but has largely lacked directional conviction and traded range-bound in recent days. The consolidation behavior, however, could end later in the week, paving the way for a technical breakout amid several key high-impact events on the calendar, including a speech by Fed Chair Powell and BoE's Bailey at the ECB’s Sintra retreat.

Towards the middle of the month, cable hit a multi-year low near 1.1934 but then bounced violently above 1.2300 after the UK central bank indicated it would act forcefully if necessary to tackle soaring price pressures. This guidance opened the door to a front-loaded policy response, leading traders to discount an interest rate hike of 50 basis points at both the August and September meetings.

However, current expectations for monetary tightening appear very aggressive in light of the deteriorating health of the UK economy, which could be heading for a recession next year. With activity data set to slow further in the coming months, the Bank of England may not be able to deliver what’s priced in but rather embraced a more measured hiking cycle. This scenario is likely to prevent a significant recovery in sterling over the medium term.

In terms of technical analysis, GPB/USD has been trading within the 1.2175/1.2330 range since June 17 but is now approaching the upper boundary of that interval, a key resistance to watch in the coming sessions. If prices breach this ceiling, bulls could launch an attack on trendline resistance near 1.2415. On further strength, the focus shifts higher to 1.2650.

On the flip side, if GBP/USD pivots lower and resumes its decline, initial support rests near the 1.2175 zone. If consolidation resolves to the downside and the pair falls below this floor, we could see a move towards 1.2040, followed by a retest of the 2022 trough.
 

GBPUSD Technical Chart

(Click on image to enlarge)

GBPUSD technical chart

GBP/USD Chart Prepared Using TradingView

Disclosure: See the full disclosure for DailyFX here.

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.