The British Pound Sterling (GBP) against the United States Dollar (USD) currency pair, or GBP/USD, is approaching a crucial technical support level that could determine the trend for several months. This article provides an analysis of factors affecting the GBP/USD price and potential outcomes of approaching support level.
GBP/USD Nears Strong Support Level:
The GBP/USD has reached the support level of 1.1645-1.1840, coinciding with the 200-day moving average, Ichimoku cloud cover and October high. This is a strong support level, given the evolving trend on the weekly chart, there is a high probability that it will hold. However, if this support is broken, it could trigger a minor double top pattern and potentially lead to a drop towards 1.1250, negating the possibility of bullish reverse head and shoulders pattern on weekly charts.
Directional Movement Indices Point to Range Conditions:
The Plus Directional Movement Index (DMI) and Minus DMI remain below 25, indicating range-bound conditions. This is consistent with the current relative monetary policy outlook, which supports a range view with a softer GBP/USD bias.
Monetary Policy Outlook Supports a Softer GBP/USD Bias:
The Bank of England raised interest rates last week by 50 basis points, while the Federal Reserve raised rates by 25 basis points as expected. While the BOE acknowledged easing inflation and scaled back some of its previous bleak economic forecasts, it hinted that smaller rate hikes and an eventual end to the tightening cycle may be in the cards in future meetings. The Fed acknowledged early signs of disinflation but indicated that it may conduct a few more rate hikes to bring inflation down to its target.
In conclusion, GBP/USD is approaching a crucial support level that could determine the trend for the next few months. While the support is strong, a break below could trigger a minor double top and potentially lead to a drop towards 1.1250. The current monetary policy outlook supports a range view with a softer GBP/USD bias, and the directional movement indices indicate range-bound conditions. Stay tuned for further updates and analysis on the GBP/USD.