GBP/USD Technical Analysis: Bulls’ Control is Stronger

During last week’s trading, the bulls succeeded in capturing an important resitance level, as the GBP/USD currency pair moved above the 1.2550 resistance. There were gains to the 1.2590 resistance, before closing trading around the 1.2580 level. This level is important alongside the 1.2630 resistance, to confirm recovery from the recent bearish shift. This motivated the bears to move towards the support level 1.2310. Overall, the pound rally also comes ahead of two key weeks that are expected to see UK jobs and inflation data ahead of the Bank of England’s June 22 interest rate decision.

Any negative surprises in the UK jobs data and inflation release (June 21) could see the pound drop and bring back some of its data, suggesting that the market is in a good place for those selling their pounds.

Commenting on this, Joe Manimbo, senior forex analyst at Convera says: “Central banks are under the microscope ahead of policy meetings in the US and the eurozone which will be followed by Britain on June 22. The spotlight on central banks is tilted to the upside of sterling on the perception that Britain has a higher rate. “It rises on the table compared to its counterparts in Britain which is experiencing high rates of inflation.”

Meanwhile, the European Central Bank meets on Thursday and is expected to raise interest rates by 25 basis points, with guidance suggesting further hikes are likely. This event poses two-way risks for the euro, as the clearly bullish ECB is likely to push the single currency higher.

Thaneem Islam, Head of Forex Analytics at Equals Money, says markets in June were quiet with low volatility in the forex space, but upcoming local data events in the UK risk disrupting the market. He adds that now would be a good time for those with foreign currency payment requirements to assess recent gains in the pound to help decide on future foreign currency purchases.

And “For forex buyers, it is worth noting the potential headwinds the Bank of England may face to keep pace with interest rate hike expectations in the markets, and any signs that they cannot/could not cause sterling to fall off such high levels.”

Meanwhile, some analysts note that the pound is nearing its limits, and recession is expected to take its toll later in the year. Accordingly, Claudio Wewell, currency strategist at J. Safra Saracen, Swiss private bank, says: “While it is possible that the pound sterling has passed the peak of pessimism, we do not think that the recent recovery in the pound sterling will extend. According to our forecasts, the British economy will contract in the fourth quarter of 2023 and in the first half of 2024.”

A renewed austerity drive should add to this, the analyst adds, “hence we remain cautious on the pound.”

J. Savra Saracen’s latest forecast shows that the pound is likely to come under pressure in the near and medium term, but a more sustained recovery is likely in the longer term. “We expect a rebound in sterling once the global cycle picks up again,” says Whewell.

• According to the performance on the daily chart below, the price of the GBP/USD currency pair is in a breach of the downside trend.
• Testing the resistance 1.2550, as happened recently, will motivate the bulls to test the resistance 1.2630, the exact level to confirm the breakout of the bearish look.
• According to the performance over the same time period, the return of the Sterling / Dollar to the support level of 1.2380 will be important for the evaporation of the current upward hopes.

Economic data and events this week will have a strong impact on the currency pair, so beware.

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