GBP/USD rebounds from its lowest level since March 2020, lacks follow-through buying


  • A dramatic USD turnaround from a 20-year high prompts some short-covering around GBP/USD.
  • Hawkish Fed expectations, rising US bond yields and the risk-off mood should limit the USD losses.
  • The UK’s gloomy economic outlook suggests that the attempted recovery is likely to be short-lived.

The GBP/USD pair stages a goodish bounce from the 1.1650-1.1645 region, or its lowest level since March 2020 touched earlier this Monday. The pair hits a fresh daily high during the early North American session, though lacks follow-through buying and is currently placed just above the 1.1700 mark.

A dramatic US dollar turnaround from a fresh 20-year high is seen as a key factor that prompted some intraday short-covering around the GBP/USD pair. In the absence of any fundamental catalyst, the USD pullback could be solely attributed to some profit-taking and is more likely to remain cushioned amid hawkish Fed expectations.

The bets were reaffirmed by Fed Chair Jerome Powell's remarks on Friday, signalling that interest rates would be kept higher for longer to bring down inflation. In fact, the markets are currently pricing in a greater chance of a 75 bps Fed rate hike in September. This is reinforced by a further rise in the US Treasury bond yields.

Apart from this, the prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets - supports prospects for the emergence of some dip-buying around the safe-haven buck. This, along with a bleak outlook for the UK economy, warrants some caution before confirming that the GBP/USD pair has formed a bottom.

The fundamental backdrop still seems tilted firmly in favour of bearish traders, suggesting that any subsequent recovery could be seen as a selling opportunity and runs the risk of fizzling out rather quickly. The market focus now shifts to the release of the closely-watched US monthly jobs report, popularly known as NFP on Friday.

Technical levels to watch

GBP/USD

Overview
Today last price 1.1717
Today Daily Change -0.0022
Today Daily Change % -0.19
Today daily open 1.1739
 
Trends
Daily SMA20 1.2022
Daily SMA50 1.2049
Daily SMA100 1.2305
Daily SMA200 1.2835
 
Levels
Previous Daily High 1.19
Previous Daily Low 1.1733
Previous Weekly High 1.19
Previous Weekly Low 1.1717
Previous Monthly High 1.2246
Previous Monthly Low 1.176
Daily Fibonacci 38.2% 1.1797
Daily Fibonacci 61.8% 1.1837
Daily Pivot Point S1 1.1682
Daily Pivot Point S2 1.1624
Daily Pivot Point S3 1.1515
Daily Pivot Point R1 1.1849
Daily Pivot Point R2 1.1958
Daily Pivot Point R3 1.2016

 

 

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