(Eren Sengezer – FXStreet)
– GBP/USD has recovered after having dropped below 1.1500.
– Sellers are likely to retain control as long as 1.1550 resistance holds.
– New British Prime Minister will be announced at 1130 GMT.
GBP/USD has managed to erase a large portion of its daily losses after having dropped to its weakest level since March 2020 at 1.1447 during the Asian trading hours on Monday. As investors wait for the Chairman of the 1922 Committee to announce the new British Prime Minister, the pair stays below 1.1500. The near-term technical outlook points to oversold conditions but sellers are likely to dominate the action unless 1.1550 turns into support.
The negative shift witnessed in risk sentiment amid the deepening energy crisis in the euro area provided a boost to the greenback and weighed on GBP/USD.
The US Dollar Index, which tracks the dollar’s performance against a basket of six major currencies, reached its highest level in two decades at 110.27 earlier in the day before retreating below 110.00.
Stock and bond markets in the US will be closed due to the Labor Day holiday on Monday and the trading action could remain subdued in the second half of the day. Meanwhile, the UK’s FTSE 100 Index is down more than 1% on the day, not allowing the pair to gather recovery momentum.
Liz Truss is widely expected to win the Conservative Party leadership race. The market action is likely to be muted because participants want to see what the new PM will do to help households amid surging energy costs. Moreover, Brexit remains an unresolved issue that is likely to make it difficult for the pound to stage a decisive rebound.
GBP/USD Technical Analysis
As mentioned above, GBP/USD stays technically oversold in the short term with the Relative Strength Index (RSI) indicator on the four-hour chart staying below 30. In case the pair stages a technical correction, 1.1500 (psychological level, static level) forms interim support before 1.1550 (static level, the upper limit of the descending regression channel, 20-period SMA). If the latter turns into support, additional recovery gains toward 1.1600 (static level, psychological level) could be witnessed.
On the downside, 1.1450 (daily low) aligns as next support ahead of 1.1400 (psychological level, lower limit of the descending channel).
Read Risk aversion sweeps across Europe
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