Pound Sterling vs US Dollar falls by over 100 pips on “Super Thursday”.
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- Pound Sterling vs US Dollar falls by over 100 pips on “Super Thursday”.
- BoE Governor Bailey suggests inflation may show a sharp fall in April data, UK growth data paints a more optimistic picture.
- US Dollar strengthens on safe-haven flows after PacWest records large deposit outflows, renewing banking jitters.
The Pound Sterling (GBP) finds a floor after dropping off a cliff against the US Dollar (USD) on Thursday, following the Bank of England (BoE) monetary policy meeting. GBP/USD is currently trading in the lower 1.25s, trading slightly higher after UK GDP data confirms the country has averted a feared recession.
The pair fell on Thursday after the Bank of England published its decision, and deepened its decline following BoE Chairman Andrew Bailey’s dovish opening comments. Although it recovered later in the press conference as Bailey moderated his tone, GBP/USD ended the day just above 1.2500, as a further factor – renewed banking crisis woes – took its toll.
From a technical perspective, GBP/USD is showing short-term bearish signs but overall remains in a long-term uptrend, advantaging long over short holders.
GBP/USD sells off to 1.2500 and shows signs it may extend lower, however, this does not change the broadly bullish long-term picture. The uptrend remains intact as long as the 1.2435 May lows hold, and thus still favors Pound Sterling longs over shorts, for now.
GBP/USD: Daily Chart
On Wednesday, the market formed a shooting star Japanese candlestick reversal pattern on GBP/USD, indicating the possibility of a short-term bearish reversal. The pattern gained confirmation after Thursday’s bearish close. The expectation is for more downside in the short-term, probably to support at the base of the rising channel/wedge, located at around 1.2475.
GBP/USD: Daily Chart
The Relative Strength Index (RSI) is falling sharply after showing mild bearish divergence between price at the May peaks and RSI. This is indicative of underlying weakness, and further suggests more short-term downside.
That said, given the overall trend is bullish, the GBP/USD exchange rate will probably recover and continue rallying. The May 2022 highs at 1.2665 provide the first resistance level, but once breached they open the way to the 100-week Simple Moving Average (SMA) situated at 1.2713, and finally at the 61.8% Fibonacci retracement of the 2021-22 bear market, at 1.2758. All provide potential upside targets for the pair. Each level will need to be decisively breached to open the door to the next. Likewise for the bull trend to reverse, the 1.2435 lows will need to be decisively breached.
Decisive breaks are characterized by long daily candles that break through key resistance levels in question and close near their highs or lows of the day (depending on whether the break is bullish or bearish). Alternatively, three consecutive candles that break through the level can also be decisive. Such insignia provide confirmation that the break is not a ‘false break’ or bull/bear trap.
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