|

GBP/USD Forecast: Oversold conditions and Boris' efforts may trigger rebound

  • GBP/USD has been tumbling down amid a worsening market mood and weak UK data. 
  • The results of Britain's vaccine clash with the EU may determine the next moves. 
  • Wednesday's four-hour chart is pointing to oversold conditions.

If I don't vaccines, nobody does – that seems to be the EU's approach to doses of the solution to the covid crisis, and that may hurt Britain. Brussels is drafting rules that may not only limit exports of inoculations but also raw materials, potentially disrupting the manufacturing of both AstraZeneca's vaccines and Pfizer's. 

Ahead of an EU Summit on Thursday, UK Prime Minister Boris Johnson is trying to soothe tensions and find a compromise that would allow Britain to continue its successful campaign. Concerns about a halt to jabbing are weighing on sterling and a solution could help it recover. 

However, other factors are beyond the PM's influence. The Consumer Price Index rose by only 0.4% in February, missing estimates and potentially pushing back any future rate hikes by the Bank of England. That comes after a mixed jobs report on Tuesday.

In the US, price rises are also high on the agenda. Jerome Powell, Chairman of the Federal Reserve, said that inflation may rise in the coming months, but is unlikely to become persistent. He reiterated his pledge to support the economy, especially as around 9.5 million Americans are out of work.

Treasury Secretary Janet Yellen also vowed to assist the recovery but remained mum on the administration's potential infrastructure plans. According to reports, President Joe Biden's advisors are mulling a whopping $3 trillion expenditure spree – but this time one that would be partially funded by tax hikes.

Why the dollar is rising while yields are falling, blame it on the taxman

Pushing rates that corporations pay to the upside is contributing to the damp mood and to flows into the safe-haven dollar. However, it also implies less issuance of bonds – and that explains the simultaneous decline in yields and the rise in the dollar. This new correlation may persist. 

Yellen and Powell will testify again on Wednesday and other Fed officials will also speak. Investors will also be eyeing investment figures – Durable Goods Orders statistics for February are forecast to show increased expansion. 

US Durable Goods February Preview: Consumption to reflect labor market recovery

All in all, dollar strength and vaccine concerns have knocked cable lower, but if jitters related to jabs subside, sterling has room to recover. 

GBP/USD Technical Analysis

Pound/dollar has broken below the double-bottom at 1.3775 and uptrend support. It also suffers from downside momentum on the four-hour chart. However, the Relative Strength Index has dropped below 30 – entering oversold conditions and implying a bounce. 

Cable is battling the 1.3680 level which provided support in February. Further down, the next levels to watch are 1.3610 and then 1.3565, both working as cushions around the same time. 

Some resistance is at 1.3745, a temporary cap from February, and then the strong 1.3775 level mentioned earlier. Further above, 1.3820 is the level to watch.

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Editor's Picks

AUD/USD sits at three-week highs above 0.7000 on hawkish RBA-speak

AUD/USD holds a positive bias for the fourth straight day, trading above 0.7000 in the Asian session on Wednesday and at three-week highs. RBA Deputy Governor Andrew Hauser's hawkish remarks and inflation concerns underpin the pair. However, the upside appears capped as the US Dollar attracts some buyers amid looming US-Iran uncertainty.

USD/JPY remains confined in a familiar range below 158.50

USD/JPY sees some dip-buying in the Asian session on Wednesday, though it remains confined within a multi-week range near 158.50 as the uncertainty over the timing of the next BoJ rate hike keeps Japanese Yen bulls on the defensive. Meanwhile, hawkish Fed expectations, bolstered by inflation risks stemming from volatile oil prices, underpin the US Dollar. However, looming intervention fears could limit JPY losses and cap the currency pair.

Gold Price Forecast: XAU/USD hits lows near $4,110 as yields, Oil pick up

Gold (XAU/USD) extends losses for the fourth consecutive day on Wednesday as a moderate pick up on US Treasury yields and higher Oil prices support a mild US Dollar (USD) recovery from Tuesday’s lows.

Bitcoin eyes a break above $85,000 as institutional demand returns

Bitcoin edges higher above $83,000, extending its rebound from the 50-day EMA near $80,786. US-listed BTC spot ETFs recorded over $23 million in net inflows on Tuesday, following Monday's $526 million, signaling a return of institutional demand.

What November 3 means for the Fed and the US Dollar's rate path

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.

The US Dollar fell. Gold didn't rally. That tells you everything
Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.