GBP/USD Deep Dive: Under Pressure?

Check out my previous G/U deep dive from early October here to see how we have progressed…

Technical Outlook:

gbp usd deep dive under pressure

Price has mainly been travelling in channels throughout the past year. As we saw the ascending channel formed post-Covid last year, price began retesting all previous key horizontal levels. Over the past couple of months, price has now formed a descending channel and likely making its way back down to lower key horizontal levels to continue the long-term trend.

gbp usd deep dive under pressure 1

We recently saw price create the next lower low in the channel, and we’ll possibly look to continue this trend and price create the next lower high. However, if we see price struggle to break beyond 1.342 we could see a shift in trend and price potentially break out of the channel and head lower.

Retail Sentiment:

gbp usd deep dive under pressure 2

Unsurprisingly, data is showing most retail traders are actually long now, potentially looking to catch the move back towards potentially 1.37 the next touch of the channel’s top. It’s likely that we’ll see financial institutions push price lower to take out most retail traders stop losses.

Upcoming News:

gbp usd deep dive under pressure 3

Unsurprisingly, we’re not seeing a lot of high impact news events coming out as we approach Christmas however, all macroeconomic data does count towards an economy’s outlook. Over the next couple of days, we’re having the BoE Governor Bailey and MPC Saunders give a speech. With recent talks surrounding rate hiking and inflation, on top of the Omicron variant, it will be interesting what they have to say and their view on how this will affect the UK economy.

Fundamental Outlook:

The Bank of England Monetary Policy Committee member Catherine Mann argued that it was way too early to discuss the timing or size of rate hikes while reiterating that inflation expectations were still underway.

Looking at macroeconomic data, the UK Manufacturing PMI was finalised at 58.1 for November as against the estimate 58.2. Traders are now looking forward to the ADP report on private-sector employment and ISM Manufacturing PMI. G/U is expected to remain bearish unless the USD faces a heavy selloff.

The discovery of this new Covid variant and the potential outbreak is another headwind for the UK economy as a whole.

On the other hand, US Fed Chair Powell told the Senate Banking Committee that they will discuss speeding up asset tapering in the upcoming policy meeting and noted that it was time to stop describing inflation as “transitory”. Commenting on the new coronavirus variant, Powell said that it could hurt the economic recovery but sounded more worried about its impact on the inflation outlook.

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