21DMA keeps bears alive ahead of BOE, Fed
GBP/USD witnessed good two-way businesses in another volatile week. It was dominated by hawkish Fed expectations and a bunch of top-tier economic data from both sides of the Atlantic. Cable settled the week deep in the red below 1.1500, down nearly 200 pips. This is as traders look forward to critical policy decisions from the US Federal Reserve (Fed) and the Bank of England (BOE) due in the week ahead. In this article, we’ll detail GBP/USD Weekly Technical Forecast for Week 38, 2022.
GBP/USD: What happened last week?
It was all about the US inflation releases and hawkish Fed rate hike expectations. The US dollar extended its corrective declines from two-decade peaks at the start of the week as risk flows dominated amid hopes of inflation easing in the US economy, which could give the Fed a chance for a breather. In the wake of these factors, GBP/USD continued its previous recovery mode from 37-year lows of 1.1405 and recaptured the 1.1700 barrier. Markets wagered about 70% odds of a 75 bps BOE rate hike this month, as a new week kicked in.
This Week: What to watch out for
Another eventful week in the offing, with the Fed and BOE rate hike decision to rock the market amidst policy decisions from the Bank of Japan (BOJ) and Swiss National Bank (SNB) as well.
On the economic data front, it will be a quiet start to the critical week, as the UK market is closed on Monday, in observance of the funeral of Queen Elizabeth. The US data also remains data-empty. On Tuesday, the mid-tier US housing data will be reported, which is unlikely to have any impact on the dollar valuations ahead of Wednesday’s Fed rate hike announcement.
With a 75 bps Fed rate hike fully baked in, hints on the future tightening path and the bank’s Summary of Economic Projections (SEC) will steal the show. The US dollar could keep the upper hand, irrespective of the Fed outcome. The greenback could kick off a fresh uptrend should the Fed surprise with a full percentage point increase. Cable is set to lose amid a hawkish Fed rhetoric. But the pair’s reaction to the Fed decision could be undone, as traders gear up for Thursday’s BOE policy meeting.
Although it’s not a ‘Super Thursday’, the BOE’s policy guidance will hold the key, as a 50 bps rate hike is widely expected. The central bank’s view on the energy crisis and the country’s economic outlook will be closely examined. The US weekly Jobless Claims will entertain American traders, in absence of top-tier data on Thursday.
The S&P Global Manufacturing and Services from the euro area economies, the UK and US will flood the calendar on Friday. This will bring an end to an action-packed week.
GBP/USD: Technical analysis
GBP/USD climbed above 21DMA on Tuesday but failed to close the day above that level. Thus, highlighting the significance of this resistance. Additionally, the Relative Strength Index (RSI) indicator on the daily chart holds slightly above 30. This suggests that the pair has more room on the downside before turning technically oversold. Finally, the one-month-old descending trend line stays intact.
Cable faces initial resistance at 1.1500 (psychological level, static level) ahead of 1.1600 (21DMA, descending trend line). With a daily close above the latter, the pair could extend its recovery toward 1.1700 (psychological level, static level).
On the downside, 1.1400 (static level, psychological level) aligns as interim support ahead of 1.1350 (multi-decade low set on Friday) and 1.1300 (psychological level).
GBP/USD: Forecast poll
Our Forecast Poll shows that experts don’t expect GBP/USD to stay bearish in the near term. One-week and one-month views both suggest that the pair is either staging a rebound or consolidating within these timeframes.
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