(Eren Sengezer – FXStreet)
– GBP/USD has regained its traction following Tuesday’s choppy action.
– 1.2070 aligns as a key resistance level for the pair.
– FOMC’s policy announcements could significantly impact the dollar’s valuation.
GBP/USD has managed to limit its losses despite the broad-based dollar strength on Tuesday and continued to edge higher early Wednesday. The pair trades within a touching distance of key resistance that seems to have formed at 1.2070 and buyers need to flip that level into support for the recovery to remain intact.
Although the dollar capitalizes on safe-haven flows on Tuesday, hawkish Bank of England (BOE) bets allowed the British pound to stay resilient against its major rivals. A 50 basis points (bps) BOE hike in August is nearly fully priced in and a majority of respondents that took part in a Reuters poll expect the bank rate to be at 2.25% by end-2022, compared with 1.75% previously.
Nevertheless, a hawkish Fed surprise could provide a boost to the dollar and force GBP/USD to turn south. The US central bank is set to raise its policy rate by 75 bps and such a decision by itself shouldn’t trigger a significant market reaction.
Investors will try to figure out whether the Fed will stay on an aggressive tightening path after the latest data caused recession fears to escalate. Additionally, the University of Michigan’s latest Consumer Sentiment Survey showed that the long-run inflation expectation declined to 2.8% from 3.1%. If policymakers refrain from committing to one more 75 bps hike in September, the dollar could find it difficult to attract investors. On the other hand, GBP/USD could come under renewed bearish pressure in case FOMC Chairman Jerome Powell reassures that they will continue to battle inflation regardless of signs of a slowdown.
GBPUSD Technical Analysis
The 200-period SMA on the four-hour chart and the Fibonacci 50% retracement level of the latest downtrend forms strong resistance at 1.2070. In case the pair rises above that level and starts using it as support, additional gains toward 1.2125 (Fibonacci 61.8% retracement) and 1.2200 (psychological level) could be witnessed. Meanwhile, the Relative Strength Index on the same chart holds above 50, suggesting that buyers look to retain control.
On the downside, 1.2030 (20-period SMA) aligns as first support ahead of 1.2000 (psychological level, Fibonacci 38.2% retracement, ascending trend line) and 1.1950 (100-period SMA).