GBP/USD FUNDAMENTAL BACKDROP

Recent pound appreciation against the U.S. dollar has been attributed to the U-turn by Chancellor Kwasi Kwarteng on Monday as well as a potential Fed pivot after misses on key U.S. economic data (ISM manufacturing PMI and job openings). The Reserve Bank of Australia (RBA) also shocked markets with a 25bps rate hike which was initially thought of as a leading indicator for the Fed which has quickly been dispelled by Fed officials yesterday. Although the labor markets is showing signs of cooling due to aggressive rate hikes, Fed officials still believe there is a lot more to come to fully tackle the inflationary problem. This being said, today’s services PMI data for both he UK and U.S. of which services is the major constituent of respective GDP, could add to lower Fed repricing should U.S. PMI’s miss estimates – see calendar below.

GBP/USD ECONOMIC CALENDAR

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Source: DailyFX Economic Calendar

PM Liz Truss is scheduled to speak later today regarding her inframammary economic policies. In hopes to restore some semblance of confidence within the Conservative Party, this speech plays a key role as to its future.

TECHNICAL ANALYSIS

GBP/USD DAILY CHART

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Chart prepared by Warren Venketas, IG

Daily GBP/USD price action shows bulls finding resistance at the 50-day EMA (blue) which coincides with the psychological 1.1500 handle. An inability to close above this level could point to subsequent downside back towards 1.1300 and beyond. Fundamentally, the challenges facing the UK continue to outweigh that in the U.S. with the winter months around the corner, UK energy concerns will likely grow thus increasing the divergence between the two nations as well as limiting the UK’s ability to maintain an aggressive monetary policy stance.

Key resistance levels:

• 100-day EMA (yellow)
• 1.1500/50-day EMA (blue)

Key support levels:

• 1.1410
• 1.1300
• 1.1000

BULLISH IG CLIENT SENTIMENT

IG Client Sentiment Data (IGCS) shows retail traders are currently equally LONG and SHORT on GBP/USD (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning, we arrive at a short-term upside bias.

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