GBP/USD Price Forecast: Markets Appear Cautious as 50-Day MA and 1.2400 Support Level Hold Firm

GBP/USD PRICE, CHARTS AND ANALYSIS:

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GBP/USD FUNDAMENTAL BACKDROP

GBPUSD found support to close out last week with the Asian session seeing a continuation of the upside move. However, the European open has seen some selling pressure return to cable facilitating a retest of the 1.2400 level before moving higher, trading at 1.2450 at the time of writing.

Currency Strength Chart: Strongest – CHF, Weakest – AUD

Source: FinancialJuice

Cable is in a delicate position as we start the new week with technical and fundamentals at odds with each other. Friday’s comments by Federal Reserve Chair Powell resulted in some dovish repricing of the Fed interest rate probabilities for June and beyond. The initial move saw interest rate probabilities for a 25bps hike in June decline from around 40% down to 22%. This move should bode well for GBPUSD moving forward as we head toward the UK inflation data release on Wednesday morning.

The UK inflation print will likely give us a clearer indication on the path the Bank of England (BoE) might take at its upcoming meeting and beyond. There have been rumblings about a huge drop in the inflation print owing to energy prices, however even such a fall still leaves the BoE with an uncomfortably high rate of inflation. I do believe some inflationary pressure may already be entrenched in the economy with at least 1 further hike needed by the Central Bank.

The day ahead is relatively quiet in terms of event risk with Federal Reserve speakers proving to be the highlight. A dovish rhetoric from Fed policymakers could see further appreciation in cable while a more hawkish tone could supply the USD with some ammunition, pushing GBPUSD below the 1.2400 handle.

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The US debt ceiling talks could be another factor to watch out for this week as discussions are set to rumble on. Friday brought some negative news as GOP negotiators apparently walked out owing to claims f unreasonableness by the White House. The longer it takes to reach a resolution the more support we may see for the US dollar, thus keeping GBPUSD below the 1.2500 psychological mark.

TECHNICAL OUTLOOK AND FINAL THOUGHTS

On the daily timeframe GBPUSD threatened a break of the ascending channel on Thursday last week before an immediate recovery saw Friday’s daily candle close back inside the channel. A false breakout perhaps? It is looking very much like a false breakout with significant support resting around the 1.2400 level. Today’s daily candle close could be interesting with a close below the 50-day MA likely opening up a retest of the 100-day MA around the 1.2275 mark.

Looking at the intraday potential for GBPUSD and I could see a retest of the 1.2500 handle developing as we have bounced of the 1.2400 and are printing higher highs and lows on smaller timeframes (15 mins chart). Should such a move continue and the 1.2500 level be reached we could find some significant selling pressure as the US open arrives. This would be down to ongoing debt ceiling negotiations which continue to pose a downside risk for GBPUSD at present and could hinder a sustained break above the 1.2500 mark.

Key Intraday Levels to Keep an Eye Out For

Resistance levels:

Key support levels:

• 1.2400 (50-day MA)
• 1.2342
• 1.2275 (100-day MA)

GBP/USD Daily Chart – May 22, 2023

Source: TradingView

Written by: Zain Vawda, Markets Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda