The pair had slumped to twenty-eight months lows earlier in July, but staged a relief rally since then, as previously aggressive expectations around the size of the Fed's next rate increase eased.
Furthermore, UK CPI inflation hit fresh four-decades highs, since it jumped to 9.4% in June year-over-year, putting pressure on the Bank of England for further tightening. Governor Bailey hinted last week that the central bank could break convention with a larger 50 basis hike, saying that such a move is "among the choices on the table" for the upcoming meeting in early August, but stressed that such an outcome is "not locked in".
The British Pound's recent advance has allowed it to contest the crucial 1.2100 region for which we had warned in our last analysis. This contains the 38.2% Fibonacci of the May High/July Low drop and the EMA200 (black line).
Daily closes above this level would pause near-term downside bias and could allow GBP/USD to extend the recovery towards mid-1.2200s and the lower border of the daily Ichimoku Cloud.
Today the pair shows some indecision and a rejection of the 38.2% Fibonacci and the EMA200 could lead to a resumption of the broader downtrend. In this case, we could see pressure back towards 1.1900, which could open the door for new 2+ year lows (1.1759), although a catalyst would be required for that.
Markets now turn to the Wednesday's Fed rate decision and intentions around the September meeting for the next leg of the move, whereas the Bank of England follows next week.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.