GBP/USD Hits a low of $1.03565 to Bring Parity into Play
It is a quiet start to the week on the economic calendar. There were no UK economic indicators to provide the GBP/USD pair with direction following Friday’s meltdown.
From the Bank of England, Monetary Policy Committee member speeches will draw interest, with MPC member Silvana Tenreyro speaking at a webinar forum on climate change, Any comments following the policy decision on Thursday and the UK government’s mini budget on Friday will influence.
Your capital is at risk
Following Friday’s mini-budget, the markets will now look for messages from the BoE on near-term and medium-term inflation projections that will reset the policy outlook.
This morning, the Asian markets responded to the mini budget, with parity now a reality.
GBP/USD Price Action
At the time of writing, the Pound was down 1.84% to $1.06506. A bearish start to the day saw the GBP/USD pair slide from an early high of $1.08464 to a low of $1.03565.
The GBP/USD pair fell through the First Major Support Level (S1) at $1.0698 and the Second Major Support Level (S2) at $1.0547) before a partial recovery to $1.065.
Technical Indicators
The Pound needs to move through S1 and the $1.0986 pivot to target the First Major Resistance Level (R1) at $1.1138 and the Friday high of $1.12736. However, with no economic indicators to shift sentiment, resistance at the morning high of $1.08464 and $1.09 would likely cap any upside.
In the case of an extended rally, the GBP/USD would likely take a run at $1.13 but fall short of the Second Major Resistance Level (R2) at $1.1426. The Third Major Resistance Level (R3) sits at $1.1865.
Failure to move through S1 and the pivot would see the Pound retest the Second Major Support Level (S2) at $1.0547. In the case of another extended sell-off, the Pound would test support at $1.050 before any recovery.
The Third Major Support Level (S3) sits at $1.0107.
Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 50-day EMA, currently at $1.12506.
The 50-day slid back from the 100-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals. A GBP/USD move through R1 ($1.1138) would give the bulls a run at the 50-day EMA ($1.12506). However, failure to move through the 50-day EMA would leave the Pound under intense selling pressure.
The US Session
It is a quiet day ahead on the US economic calendar. There are no US economic indicators to provide the GBP/USD pair with direction later today. The lack of stats will leave the GBP/USD pair in the hands of market risk sentiment and any FOMC member chatter.
Monetary policy divergence and sentiment towards the global economic outlook support a DXY move towards 115 near-term. Direction is unlikely to shift until a marked deterioration in US labor market conditions and a sharp slowdown in consumption.