GBP/USD Technical Analysis: Recovery Despite Pressure

• Throughout this week’s trading, the price of the GBP/USD currency pair is on an upward rebound path to compensate for its recent losses.
• It affected the support level 1.2368 but attempts to rebound did not exceed the resistance level 1.2500, before the currency pair settled around the 1.2450 level at the time of writing the analysis.
• The US dollar recently got a strong impetus from the strong US job numbers, which will not hinder the course of tightening US central bank policy.

The GBPUSD exchange rate may be at risk of falling back to the psychological support of 1.20 over the coming weeks according to a new technical analysis from Bank of America, however, near-term studies point to further consolidation near 1.24. In this regard, Paul Sianna, a strategic analyst at Bank of America, says that he is taking a bearish stance on the pound against the dollar while the exchange rate remains below the long-term trend line.

He adds that GBP/USD topped trend line resistance and prefers to sell the bounce again and look for a drop near the 200 day simple moving average around 1.20. “GBP/USD has reached trend line resistance,” the analyst added. And “we tend to sell rallies in GBPUSD while below the trend line now at 1.2630 for the downside to the 1.20/200d SMA.”

He adds that the bearish bias may be invalidated if the exchange rate breaks higher above this long downtrend line. And if this is the case, there is potential for a rise to a new high for this year (to/above 1.2680) and close to the psychological resistance 1.30. Looking at the near-term price action, Andrew Spencer, market analyst at Reuters, says GBP/USD is flat at the base of the 1.2420-1.2438 range. There is a lack of key economic data in the UK to drive the pound against the dollar this week, which could leave the pair under the whims of the big greenback.

The analyst added that GBP/USD consolidation can be expected as the markets are expected to be on hold ahead of the Federal Reserve, European Central Bank and Bank of England interest rate decisions. Spencer’s technical assessment of the charts reveals daily momentum studies, the 5, 10 and 21 day moving averages opposing, and the 21 day bollinger bands contracting. This, he adds, provides “confusing signals of cohesion”.

 A number of forex analysts have revealed research showing that the pound is poised for a period of weakness as the British economy enters a slowdown in the second half of the year, led by the housing market. Forex analysts at JP Morgan are selling the pound, saying it is only a matter of time before a more prolonged downturn occurs in response to deteriorating economic growth fundamentals.

“The lack of a rally in the pound on the back of shockingly high inflation in the UK suggests that the reaction function of the pound may change given the growth fallout,” says Patrick R. Locke, senior analyst at JPMorgan.

The forecast comes after a period of outperformance in the GBP/Euro and GBP/D pairs (in fact, the pound will outperform all other major currencies in 2023), linked to better-than-expected economic data and the Bank of England’s commitment to higher interest rates. Overall there are certainly a number of analysts who say the BoE’s stance is supportive of the GBP outlook, particularly in a world where interest rates drive the foreign exchange markets. But for some economists, the pound’s reaction to higher interest rates threatens to turn negative if the economy slows.  

Ready to trade our daily Forex analysis? Check out the best forex trading company in UK worth using.