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GBP/USD Technical Analysis: Central Bank Decisions Ahead

The British pound rose broadly in the last trading session of last week despite the apparent risk aversion among investors who sidestepped falls in stocks and commodities in favor of government bonds while giving the US dollar a wide place. In the case of the GBP/USD currency pair, it rebounded to the 1.2200 resistance and closed the week’s trading stable around the 1.2175 level. In the middle of the week’s trading, it was the closest to breaching the psychological support 1.2000.

Overall, the British pound gave up ground against the Australian dollar, Japanese yen, and New Zealand dollar on Friday, but otherwise rose against all of its G20 peers while holding firmly above 1.21 against the weaker US dollar. Fresh losses in equity markets did nothing to encourage “safe-haven” demand for the dollar, which was widely sold off before and after Friday’s weaker-than-expected US economic data. Commenting on this, Ian Shepherdson, chief economist at Pantheon Macroeconomics, says: “These surveys are very volatile, because of their small samples, but their collective signals are unmistakable.”

He adds, referring to industrial production figures in the United States: “In the absence of a strong recovery in the next few months, we will have to lower our expectations for business investment, which increases the possibility of a recession.”

Federal Reserve data on Friday indicated that US industrial production did not grow at all in February when economists had been looking for an increase of around 0.2%, while the University of Michigan’s measure of consumer intensification for March eased. “This month’s drop was already fully achieved before the Silicon Valley bank fiasco, as about 85% of our interviews for this initial release were completed,” the university says of the survey results. She adds, “The low sentiment is concentrated among low-income, less educated, and younger consumers, in addition to consumers with the highest percentage of shares. Overall, all components of the index worsened relatively evenly, primarily on the basis of continued high prices.

The economic data did nothing to reverse the downward drift that continued in the dollar’s exchange rates, in favor of the pound, during most of the week with the only exception being Wednesday’s session when the collapse in European bank stocks and other currencies weighed on the euro.

European banking stocks were sold off heavily after Wednesday’s drop in Credit Suisse’s share price, which occurred amid much speculative comment about the bank’s short-, medium- and long-term viability, and while it came strongly on the heels of several bank failures in the US over the weekend. “The good news is that the search for the next SVB has not yielded any new victims, so far,” says Brent Donnelly, CEO at Spectra Markets and a veteran trader who has spent time at hedge funds and a number of global banks including Lehman Brothers and HSBC.

Equity markets rebounded on Thursday, with banks also buying back shares in some places after Credit Suisse said it would take advantage of short-term funding facilities offered to it by the Swiss National Bank (SNB) and after a consortium of large US banks bailed out a smaller counterpart. This saw First Republic Bank secure a significant amount of syndicated financing from banks including Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, PNC Bank, State Street, Truist, and U.S. bank.

Banks and their stocks have had a rough road since funding pressures led to the failure of Silicon Valley Bank (SVB) and others late last week, although banking stocks were far from the only decliners in US and European markets in Friday trading.

  • According to the performance on the daily chart below, the price of the GBP/USD currency pair is still in a stage where it has begun to break the general bearish trend.
  • The bulls will be able to control the direction in case it moves towards the resistance levels 1.2280 and 1.2440.
  • The currency pair will return towards the level of support 1.2085 which will force the bears to return to the vicinity of the psychological support level 1.2000, from which hopes for a rebound to the upside evaporate.
  • I still prefer selling the currency pair from every upside.
  • The currency pair may remain in waiting mode until the reaction from the announcements of both the Bank of England and the US Central Bank this week.

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