GBP/USD bears piling in at critical daily resistance

  • GBP/USD bears seeking a downside continuation from the 61.8% failure.
  • All eyes are on the Bank of England and the US data.

GBP/USD is trading a touch higher on a day where the pair has traded between a low of 1.3923 and 1.4001 as sterling gained for a third session against the dollar.

The focus has been on the US dollar as investors weigh the various Federal Reserve speakers this week that have appeared to be balanced in their rhetoric with regards to the prospects of tapering of asset purchases by the central banks.

The US central bank last week signalled higher rates in 2023 and the premise that ultra-loose Fed policy effectively guarantees trend USD depreciation was ruptured.

However, some Fed officials have back-peddled.

Yesterday, for instance, Federal Reserve Chair Jerome Powell said that the central bank won't raise rates on fear of inflation.

He reiterated to Congress that rising inflation is likely temporary and showed no signs of being in a hurry to tighten monetary policy.

Therefore, the arguments for a broad-based, persistent USD rally are not yet compelling.

Meanwhile, with Fed aside, on Wednesday's UK PMIs put the focus squarely back on data for the pound.

The preliminary reading of the IHS Markit/CIPS UK Composite Purchasing Managers' Index (PMI) pointed to one of the strongest monthly improvements in business activity since 1998.

The reading of 61.7 was not far off May's unprecedented 62.9. As for services, the sector slid 61.7 in June from 62.9 in May. 

BoE in focus

The encouraging data falls ahead of Thursday 24 June Bank of England meeting.

The central bank announces its latest decision at 12:00 BST and although analysts expect no changes to policy, a more optimistic economic assessment from the BoE could push sterling back towards 1.4000 and beyond a 50% mean reversion of the last bearish daily impulse.

An upbeat outlook, combined with the fact that UK inflation hit its highest in nearly two years will likely fan the flames of speculation that the Bank of England will hike rates in 2022, ahead of the Fed.  

Currency markets are fully pricing in a 30 basis point hike in rates by the BoE by December 2022.

As for COVID, Britain has delayed the final phase of its economy's reopening by a month to July 19. 

Prime Minister Boris Johnson has enforced the restrictions and said that the Uk needs extra time to speed up the country's vaccination programme.

This is a thorn in the side of the pound which has otherwise been among the top-performing 'G10' currencies this year on bets that Britain's economy will reopen quicker than peers following the nations COVID-19 vaccination programme. About 80% of Britain's adult population has received the first dose.

Counteracting the bad news, elsewhere, European Union member states have informally agreed to grant Britain a three-month extension to resolve a dispute over whether chilled meat products produced in mainland Britain can continue to be sold in British-ruled Northern Ireland.

GBP/USD technical analysis

The bears will be lining up for prospects of a downside continuation following the test and failure of the 61.8% Fibonacci retracement level of 1.4000 which is a historic resistance level.

With that being said the bear will be prudent to wait for a break of both the monthly dynamic and horizontal support below 1.3940.

A monthly close of 1.3780 or lower will be highly bearish and will have put a triple monthly top in place:

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD remains depressed below 1.1850 after the Fed's taper talk

EUR/USD is trading under 1.1850, hit by hawkish comments by the Fed's Clarida and Daly. The bank is nearing tapering its bond-buying scheme, a move that could happen this year. US jobless claims and a speech from the Fed's Waller are eyed.


GBP/USD flirts with 1.3900 ahead of the BOE's Super Thursday

GBP/USD is licking its wounds around 1.3900 ahead of the BOE’s Super Thursday rate decision in which it also releases new forecasts. Declining covid cases are supporting sterling while hawkish comments from the Fed's Clarida are boosting the dollar.


XAU/USD off highs, steady around $1810 ahead of BOE, US data

Gold price is trading almost unchanged on the day, unable to hold at higher levels, despite the latest pullback in the US dollar across the board. The cautious tone across the European markets fuelled the risk-off flows in the US Treasuries, downing the yields alongside the dollar.

Gold News

75% of Ethereum nodes prepared for London hard fork as ETH price surges above $2,700

Around 75% of Etheruem nodes are prepared for the London hard fork. The highly anticipated upgrade is expected to occur on block 12,965,000 scheduled for August 5, following a slight delay. Ethereum price managed to slice above $2,700 for the first time since early June. 

Read more

Bank of England Preview: Five reasons the doves are set to win Super Thursday

An epic battle between hawks and doves on Super Thursday? That is a dramatic way to view the Bank of England's upcoming rate decision – yet there are good reasons to expect doves to carry the day. That would send sterling down. 

Read more