GBP/USD Analysis

Key Points

1. GBP/USD is currently trading within a narrow range just below the year-to-date (YTD) peak reached on Friday.
2. The USD is seeing a revival in demand due to elevated US bond yields, which poses a challenge for the pair.
3. The potential for the Bank of England (BoE) to adopt a more aggressive tightening stance should prevent a significant decline in the pair.

Today's Scenario: -

The GBP/USD pair has started the new week with a subdued tone, consolidating its recent gains that pushed it to the highest level since April 2022, around the mid-1.2800s reached on Friday. During the Asian session, spot prices have remained within a narrow trading range and are currently trading near the 1.2820-1.2815 region, showing a slight decrease of just over 0.10% for the day.

The US Dollar (USD) has gained some positive momentum, ending a two-day losing streak and recovering from its lowest level since June 2022, which acts as a headwind for the GBP/USD pair. The prospect of further policy tightening by the Federal Reserve (Fed) later this month supports elevated US Treasury bond yields and revives demand for the USD. However, reduced expectations of additional interest rate hikes by the Fed after the anticipated one in July might prevent aggressive bullish moves in

the USD.

The US non-farm payrolls (NFP) report released on Friday revealed that the economy added the fewest jobs in 2-1/2 years in June, suggesting a gradual easing of labor market conditions. This, coupled with signs of slowing inflation, has fueled speculation that the Fed may eventually adopt a less hawkish stance. On the other hand, expectations of the Bank of England (BoE) taking a more aggressive approach to policy tightening to combat high inflation continue to support the British Pound and limit the downside for the GBP/USD pair.

Traders may adopt a cautious approach and avoid making aggressive bets, opting to wait for key economic releases this week. The UK monthly employment data scheduled for release on Tuesday and the latest US consumer inflation figures on Wednesday will play significant roles in influencing near-term USD price dynamics and provide fresh direction for the GBP/USD pair. In the absence of major market-moving economic releases on Monday, traders will pay attention to a speech by BoE Governor Andrew Bailey for potential short-term trading opportunities.

Diagram of GBP/USD: -

Economic Events: -

Buy Scenario: -

On the buying side of GBP/USD is the widening gap between the 50-day and 200-day EMAs, which further reinforces the bullish trend.

The 14-day relative strength index (RSI) stands at 64.39, suggesting a bullish trend that aligns with the signals from the 50-day and 200-day EMAs. If the GBP/USD pair maintains a position above the upper level of the $1.2775 - $1.2800 resistance band, it could potentially target the $1.30 mark.

 Till we do not advise to buy GBP/USD.

Sell Scenario: -

On the daily chart, the GBP/USD pair is currently positioned above the resistance band of $1.2775 - $1.2800. The presence of the 50-day exponential moving average (EMA) at $1.25937 and the 200-day EMA at $1.23495 indicates bullish momentum in the near and long term. Till then we do not advise selling GBP/USD.

Support and Resistance Level: -

 Support            Resistance  

 S1 1.2760  -   R1 1.2884

 S2 1.2681  -   R2 1.2928

 S3 1.2637  -   R3 1.3007