GBP/USD Fundamental Backdrop

Yesterday’s FOMC Minutes left markets unsure about the Fed’s path going forward with the statement far from being hawkish yet the market's reaction reflected a hawkish undertone. My view is that investors did not focus on the slowing of rate hikes but rather the expectation around a looming recession that left stock markets in the red while the safe haven greenback found support.

The better-than-expected UK inflation report was not enough to deter the broader U.S. focus stemming from the encouraging core retail sales figures. The rest of the day (see economic calendar below) continues down that path with U.S. initial jobless claims in focus as well as speeches from the Fed’s George and Kashkari respectively. As historical hawks, it will be interesting to see whether they reiterate the need to maintain rate hikes to truly quell inflation pressures or conform to the FOMC Minutes narrative.

GBP/USD Economic Calendar

Source: DailyFX Economic Calendar
 

Technical Analysis

GBP/USD Daily Chart

(Click on image to enlarge)

Chart prepared by Warren Venketas, IG

Daily GBP/USD price action had bears testing the 1.2000 psychological support handle in early trading, adding to cables bearish momentum as shown by the Relative Strength Index (RSI). A break below could open up the 1.1890 swing low but I suspect a pound comeback off the 1.2000 level short-term.

Key resistance levels:

• 50-day EMA (blue)
• 20-day EMA (purple)
• 1.2080 (76.4% Fibonacci)

Key support levels:

• 1.2000
• 1.1890
   

Bearish IG Client Sentiment

IG Client Sentiment Data (IGCS) shows retail traders are currently LONG on GBP/USD, with 72% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment resulting in a short-term downside bias.

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