The GBP/USD pair appears to have started a bearish pullback, bouncing in a small trading area around 1.3230-35 throughout the Asian session.
The duo managed to hold the 1.3200 level and attract modest purchasing on the opening day of a new week, however, the attempted rebound failed to materialize in the face of fresh US Dollar strength.
As speculators looked beyond Friday’s disappointing US employment statistics, the USD was back in favor, buoyed by the potential for a quicker Fed policy tightening.
Fundamental Outlook
Investors appear to believe that the Fed will be obliged to execute a more radical policy response to limit persistently rising inflation.
Indeed, the money markets predict that the Fed will liftoff by May 2022, which would act as a tailwind for the Greenback. This, combined with Brexit-related concerns, limited the GBP/USD pair’s gain potential.
Meanwhile, global risk sentiment has steadied as a result of preliminary findings from South Africa indicating that Omicron victims had relatively moderate symptoms.
This was obvious from a generally upbeat tone in the stock markets, which may deter USD bulls from putting in new bullish bets and restrict the GBP/USD pair’s fall.
As a result, it is wise to wait for a persistent break below the 1.3200 level before preparing for a further short-term decline in the GBP/USD pair.
The lone release on the UK economic calendar is the Construction PMI, while the US has no important market-moving data. This adds to the warning for strong bearish traders.
However, a speech scheduled by Bank of England Deputy Governor Ben Broadbent may affect the British Pound and add some momentum to the GBP/USD pair.
This, coupled with overall market volatility, will be scrutinized for possible short-term trading opportunities in and around the majors.
Technical Levels To Keep An Eye On
GBP/USD CHART Source: Tradingview.com
From a technical standpoint, Friday’s drop reinforced a near-term bearish breach through a short-term declining pattern that began in July.
However, the pair’s potential to resist the 1.3200 level calls for some caution from aggressive bearish traders. As a result, it is wise to wait for any follow-through selling below the indicated handle before preparing for any additional depreciation.
The pair may then accelerate its decline towards the next key support at the 1.3125 zone, en-route to the 1.3100 and 1.3050-45 levels.
On the other hand, any future move up is expected to encounter firm resistance at the 1.3300 round mark. A persistent rise above will indicate that the pair has created a short-term base around the 1.3200 level, paving the path for further near-term recovery.
The pairing may then accelerate its rebound momentum into the 1.3340-50 support area, heading into the 1.3370 and 1.3400 levels. The latter should operate as a crucial barrier, and if overcome forcefully, any near-term bearish bias should be eliminated.
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