(Slobodan Drvenica – Windsor Brokers)
Cable edged higher in Asian / European trading on Tuesday, boosted by cautious optimism that new UK Prime Minister Liz Truss will manage handle deepening crisis, though market will look for a much more evidence about the action the new government will take.
The key problem that Truss face will be to cap energy costs, as soaring prices strongly hit UK households, by sharply rising cost of living.
The new government is expected to unveil the plan for providing a billions of pounds to help struggling Britain’s households and will also need to answer the questions about fiscal and monetary policy.
This comes a week ahead of Bank of England policy meeting (Sep 15), in which the central bank is expected to hike interest rates for the seventh consecutive time, with around 70% expecting 75 basis points hike to 2.5%, in its fight to bring the double-digit inflation under control.
Technical picture shows fatigue of larger bears as daily studies are oversold, though firm bearish structure and persisting negative fundamentals suggest that corrective action likely will be just positioning for fresh push lower.
Upticks should be ideally capped under daily Tenkan-sen (1.1672), also 50% retracement of 1.1900/1.1443 bear-leg, to keep bears intact for final attack at 2020 low at 1.1410, loss of which would spark stronger acceleration lower.
Res: 1.1618; 1.1672; 1.1703; 1.1761.
Sup: 1.1568; 1.1512; 1.1443; 1.1410.
GBP/USD Forecast: Pound needs to clear 1.1600 to attract buyers
(Eren Sengezer – FXStreet)
– GBP/USD clings to daily recovery gains above 1.1550.
– Near-term technical outlook points to a bullish tilt following latest rebound.
– The pair could extend its rebound if it manages to clear 1.1600.
GBP/USD has gathered recovery momentum and advanced toward 1.1600 on Tuesday. The near-term technical outlook points to a bullish shift as investors await the US ISM Services PMI data for August.
Following Monday’s choppy action amid the Labor Day holiday in the US, the risk-positive market environment made it difficult for the dollar to gather strength during the Asian trading hours on Tuesday and allowed GBP/USD to push higher.
The UK’s FTSE 100 Index is trading in positive territory early Tuesday and helps the pair stay bullish. New British Prime Minister Liz Truss promised on Monday to deal with the energy crisis and said that she will deliver a bold plan to cut taxes and grow the economy. Truss is expected to unveil her plan on Thursday. According to several news outlets, Truss is considering a lengthy freeze on energy bills for households and businesses.
Although it’s difficult to say how such a measure would impact the Bank of England’s policy outlook moving forward, the positive effect on the risk perception seems to be helping the British pound for now.
In the second half of the day, the ISM Services PMI data from the US will be looked upon for fresh impetus. Markets expect the Prices Paid component of the survey to increase to 76.5 in August from 72.3 in July. An unexpected decline in the inflation component could weigh on the greenback and open the door for an extended rebound in GBP/USD. Market participants will also keep a close eye on the performance of US stocks. If Wall Street’s main indexes struggle to stage a convincing recovery, safe-haven flows could return to markets and limit the pair’s upside.
GBP/USD Technical Analysis
The last three four-hour candles closed above the descending regression channel coming from early August and the 20-period SMA. Additionally, the Relative Strength Index rose to its highest level near 60 since the beginning of the latest downtrend, reflecting the bullish tilt.
1.1600 (psychological level, static level) aligns as immediate resistance. In case the pair manages to hold above that level, the 1.1640/50 area (50-period SMA, static level) could be seen as the next hurdle ahead of 1.1700 (static level, psychological level).
On the downside, 1.1550 (20-period SMA) forms first support before 1.1500 (psychological level, upper limit of the descending channel) and 1.1440 (September 5 low).
Read USD regains strength