GBP/USD pulls back from one-month peak in the 1.2220s ahead of speech by BoE’s Bailey
|- GBP/USD retreats after peaking at one-month high on Monday.
- Thin liquidy conditions due to US public holiday as well as technical selling at 200-week SMA may be cause of volatility.
- Pound is dogged by recession fears ahead event risk in the form of the BoE Governor Bailey’s speech.
The GBP/USD pair is losing ground in the early European Session on Monday, falling to around 1.2180 at the time of writing. After making a new high for the month a few hours earlier the pair has suddenly reversed course and is dropping rapidly; it is not down 0.36% for the day.
The US Dollar has rebounded from a fresh seven-month low as thin liquidity due to it being a public holiday, Martin Luther King Jr. Day, in the US, as well as technical selling at the key 200-week Simple Moving Average (SMA) cause heightened volatility. After bidding the market ever higher, traders appear to be putting the brakes on overdone US Dollar shorts. Nevertheless, a growing acceptance that the Fed will soften its hawkish stance maintains pressure on the world's reserve currency and dims its outlook.
The US Dollar remains undermined by bets for smaller Fed rate hikes following the US December CPI report released last week which showed that consumer prices fell for the first time in more than 2-1/2 years. Several FOMC members backed the case for a 25 bps rate hike in February. This, along with a positive risk tone had been weighing on the safe-haven buck duiring the Asian session.
The Pound Sterling remains pressured by a negative economic outlook for the United Kingdom, where economic woes and widespread strike action raise the spectre of recession. Globally, the resurgence of the COVID-19 outbreak in China and the protracted Russia-Ukraine war also keep a lid on the optimism in the markets, hurting the Pound. Traders also seem reluctant to place aggressive bets around the GBP/USD pair ahead of a speech by the Governor of the Bank of England Andrew Bailey, at 15:00 GMT on Monday.
Apart from that, there isn't any major market-moving economic data due for release for the pair. This, in turn, makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move for the GBP/USD pair.
From a technical perspective the pair remains in a medium-term uptrend ever since the September 2022 lows, and the subsequent key break above the previous higher lows at 1.1730. It has now established peak and trough progression higher and although currently weakening the broader uptrend is still intact, which suggests bulls have the advantage. Monday's dip started at the level of the 200-week SMA at around 1.2220 and may simply be caused by technical selling off of the MA. Given Cable's overall uptrend, it is probable the correction witnessed today is the start of a pull back which will provide bulls with opportunities to get long at more favourable prices. Solid support lies in the 1.2050-60 zone from the key 50 and 200-day SMAs and could provide such a platform for a bullish recovery.
Technical levels to watch
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