GBP/USD Forecast: Sterling selling opportunity? Fakeout, end-of-month jitters show bearish bias
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UPGRADE- GBP/USD has advanced in a fresh bout of dollar weakness.
- UK staff shortages and elevated covid cases could send sterling down.
- Tuesday's four-hour chart is showing the cable's break above resistance may have been false.
Is sterling benefiting from fresh energy after the long weekend in the UK? Even if the answer that question is yes, this new surge could be short lived. Technicals are already pointing to a "fakeout." Why does this upward move have its limits?
First, the main upside driver is dollar weakness – an extension of the selloff triggered by the central bank's dovish stance on Friday. Federal Reserve Chair Jerome Powell refrained from committing to tapering the bond-buying scheme. Investors await Friday's Nonfarm Payrolls for the next big move.
In the meantime, that trade has already seen its ups and downs – the dollar gained some ground on Monday – and another correction could be in store as August concludes. End-of-month flows could cause jitters and send GBP/USD back down.
More importantly, Britain's issues are far from over. While a business survey from Lloyds has shown the highest level of confidence in four years, companies expressed worries about inflation and also staff shortages. There is a dearth of available lorry drivers which has already resulted in empty shelves in some supermarkets. That is not only a result of a global supply-demand imbalance but also of Brexit.
The end of August also marks the return of European politicians to work and they could release disgruntled comments about the unresolved issue of the Northern Irish protocol. That could also weigh on sterling.
UK COVID-19 cases remain elevated and could also cause consumers to shy away from spending. Daily infections are still hovering around 30,000 and hospitals are yet to feel relief.
Apart from the scramble to adjust portfolios as the month ends, investors will also be eyeing the US Conference Board's Consumer Confidence gauge for August. It is set to follow a similar publication from the University of Michigan and descend.
Conference Board Consumer Confidence August Preview: Negative dollar risks
Overall, there is room for cable to climb down.
GBP/USD Technical Analysis
The critical 1.3785 level – which separated trading ranges during ttis month – has finally been breached, with GBP/USD hitting 1.3801. However, the currency pair retreated back below this level in short order – only a false breakout or "fakeout."
Cable was rejected at the 200 Simple Moving Average on the four-hour chart and has failed to garner substantial upside momentum. All in all, bulls have yet to make their mark.
Support awaits at 1.3735, the weekly low, and then by 1.3680, a low point from last week. Further down, 1.3635 and 1.36 are eyed.
Resistance above 1.3785 is at 1.3830, then at 1.3875 and 1.3896, both seen in early August.
- GBP/USD has advanced in a fresh bout of dollar weakness.
- UK staff shortages and elevated covid cases could send sterling down.
- Tuesday's four-hour chart is showing the cable's break above resistance may have been false.
Is sterling benefiting from fresh energy after the long weekend in the UK? Even if the answer that question is yes, this new surge could be short lived. Technicals are already pointing to a "fakeout." Why does this upward move have its limits?
First, the main upside driver is dollar weakness – an extension of the selloff triggered by the central bank's dovish stance on Friday. Federal Reserve Chair Jerome Powell refrained from committing to tapering the bond-buying scheme. Investors await Friday's Nonfarm Payrolls for the next big move.
In the meantime, that trade has already seen its ups and downs – the dollar gained some ground on Monday – and another correction could be in store as August concludes. End-of-month flows could cause jitters and send GBP/USD back down.
More importantly, Britain's issues are far from over. While a business survey from Lloyds has shown the highest level of confidence in four years, companies expressed worries about inflation and also staff shortages. There is a dearth of available lorry drivers which has already resulted in empty shelves in some supermarkets. That is not only a result of a global supply-demand imbalance but also of Brexit.
The end of August also marks the return of European politicians to work and they could release disgruntled comments about the unresolved issue of the Northern Irish protocol. That could also weigh on sterling.
UK COVID-19 cases remain elevated and could also cause consumers to shy away from spending. Daily infections are still hovering around 30,000 and hospitals are yet to feel relief.
Apart from the scramble to adjust portfolios as the month ends, investors will also be eyeing the US Conference Board's Consumer Confidence gauge for August. It is set to follow a similar publication from the University of Michigan and descend.
Conference Board Consumer Confidence August Preview: Negative dollar risks
Overall, there is room for cable to climb down.
GBP/USD Technical Analysis
The critical 1.3785 level – which separated trading ranges during ttis month – has finally been breached, with GBP/USD hitting 1.3801. However, the currency pair retreated back below this level in short order – only a false breakout or "fakeout."
Cable was rejected at the 200 Simple Moving Average on the four-hour chart and has failed to garner substantial upside momentum. All in all, bulls have yet to make their mark.
Support awaits at 1.3735, the weekly low, and then by 1.3680, a low point from last week. Further down, 1.3635 and 1.36 are eyed.
Resistance above 1.3785 is at 1.3830, then at 1.3875 and 1.3896, both seen in early August.
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