GBP/USD Technical Analysis: Watch for Important Data

The stability of the sterling/dollar currency pair below the psychological support level of 1.20 will be important for a strong and continuous control of the bears on the direction.

GBP/USD has stabilized after the heavy sell-off in early February and could remain supported above near 1.1950 in the coming days. Its scope for recovery will be limited unless US data this week questions the idea that deflation is underway. Within limited movements for the sterling/dollar currency pair, I settled in the range between the support level 1.2030 and the 1.2144 level and settled around the 1.2130 level at the time of writing the analysis.

Sterling rose against the greenback last week in price action that appeared to be supported by rising British government bond yields and supportive statements from members of the Bank of England’s (BoE) Monetary Policy Committee. As the majority members of the nine-seat Monetary Policy Committee suggested last week that further increases in the Bank Rate were likely if UK wage growth or other factors threatened to keep inflation stronger for longer, data were likely to British jobs today Tuesday an insight into this.

However, US inflation figures for January will be released soon after. Any attempt at a recovery in GBP/USD is likely to be undermined if the idea of a turn of the corner in favor of the deflationary process now believed to be underway is called into question. Commenting on that, Joseph Caporso, an analyst at the Commonwealth Bank of Australia, says: “The GBP/USD pair could rise this week if the dollar declines as we expect. The GBP/USD pair could also receive support if UK average weekly wage growth (Tuesday) or the core CPI (Wednesday) show no signs of easing”, and “The main risk to the US dollar this week is a price index American consumers for the month of January. Core CPI measures have initially trended lower in the past few months. But there are limits to the extent of its downward trend while employment costs in the United States are growing strongly. Therefore, the basic consumer price index may surprise in the upward trend and raise American interest rates and the US dollar”.

U.S. inflation has eased in recent months, prompting U.S. Federal Reserve Chairman Jerome Powell and other members of the Federal Open Market Committee (FOMC) to suggest beginning to acknowledge cautious optimism that deflation may now be underway. Such a process may take time to return inflation to the 2% target, however, there is a risk of setbacks along the way that could raise interest rate expectations and lead to a less supportive environment for non-dollar currencies including foreign currencies. Like the pound sterling.

The most important detail in this week’s report will be the pace of inflation in the non-residential parts of the service sector, as the Federal Reserve indicated that these factors have a prominent impact on its thinking on interest rates. Tuesday’s US data is followed by inflation figures from Britain and retail sales figures for January from the US, all of which will play a role in determining whether the pound-to-dollar price is able to break through the technical resistance that barred its way above 1.22 last week.

The risk for sterling is that a stronger-than-expected pick-up in US inflation conspires with resilient retail sales to raise expectations for the federal funds rate while thwarting any further recovery in sterling.

Today’s Sterling vs. Dollar expectations:

• The price of the GBP/USD currency pair is still settling between the 50 and 200 ema moving averages.  
• We still don’t see any reason for the currency pair to rise from here.
• It could be 1.1500 but 1.2100 makes no sense to me.  
• The September rebound points to a possible technical support area for the Pound.  
• The selected moving averages indicate potential resistance 1.2220.  

According to the performance on today’s chart and on the other hand, as I mentioned before, the stability of the sterling/dollar currency pair below the psychological support level of 1.20 will be important for a strong and continuous control of the bears on the direction.

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