Forex world

December 20, 2022

GBP/USD struggles to capitalize on its modest bounce

- GBP/USD reverses an intraday dip to sub-1.2100 levels, or over a two-week low.

- The BoJ-inspired rally in the JPY weighs on the USD, which, in turn, lends support.

- Hawkish Fed, rising US bond yields and recession fears should limit the USD losses.

The GBP/USD pair attracts fresh buying near the very important 200-day SMA and rebounds nearly 100 pips from a two-and-half-week low touched earlier this Tuesday. The momentum is supported by the heavy US Dollar selling and lifts spot prices closer to the 1.2200 mark during the first half of the European session, though lacks bullish conviction.

An unexpected hawkish twist by the Bank of Japan triggers a massive rally in the Japanese Yen, which, in turn, weighs on the greenback. Apart from this, an intraday recovery in the risk sentiment is seen as another factor undermining the safe-haven buck and acting as a tailwind for the GBP/USD pair. That said, any meaningful upside still seems elusive, warranting some caution for aggressive bullish traders and positioning for a further intraday appreciating move.

Worries that a surge in new COVID-19 infections in China could delay a broader reopening in the country overshadows the recent easing of strict lockdown measures. This, along with the protracted Russia-Ukraine war, has been fueling fears about a deeper global economic downturn, which should keep a lid on any optimistic move in the markets. Moreover, a more hawkish commentary by the Federal Reserve supports prospects for the emergence of some dip-buying around the USD.

It is worth recalling that the US central bank indicated that it will continue to raise rates to crush inflation. Furthermore, policymakers projected at least an additional 75 bps increases in borrowing costs by the end of 2023. This, in turn, leads to a fresh leg up in the US Treasury bond yields and favours the USD bulls. Apart from this, a dovish outcome from the Bank of England meeting last week might contribute to capping the upside for the GBP/USD pair.

In fact, two out of nine BoE MPC members voted to keep interest rates unchanged, suggesting that the central bank is closer to ending the current policy tightening cycle. Hence, any further recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Bearish traders, however, might wait for a sustained break below a technically significant 200-day SMA support before placing fresh bets and positioning for deeper losses.

Technical levels to watch


No comments:

Post a Comment