GBP/USD to Violate 61.8% Fibonacci Retracement – What’s Next?
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- US Employment cost index for the quarter dropped to 1.0% from the forecasted 1.2% and weighed on the US dollar.
- Federal Reserve left policy unchanged in January but made a notable change of tone toward the hawkish side.
- Bias for the downtrend dominates under the 1.3395 level with a target of 1.3299 and vice versa.
The GBP/USD closed at $1.3408 after setting a high of $1.3434 and a low of $1.3363. The GBP/USD pair reversed its course on Friday and recovered a minor portion of its previous day’s losses on the back of the declining US dollar. The US Dollar Index, which measures the greenback’s value against the basket of six major currencies, rose to its highest level in 19 months at 97.44 but failed to remain there and started declining to fall at 97.22. The dismal macroeconomic data from the US added pressure on the local currency and dragged the US dollar lower, which ultimately helped GBP/USD recover some of its previous losses.
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A quick economic event outlook
The UK economic docket had nothing to offer on Friday, so the pair GBP/USD was left at the mercy of the US dollar. At 18:30 GMT, the Core PCE Price Index for the quarter remained flat at 0.5%. The employment cost index for the quarter dropped to 1.0% from the forecasted 1.2% and weighed on the US dollar.
Personal income declined to 0.3% against the projected 0.5% and weighed on the dollar. Personal spending remained unchanged at 0.6%. At 20:00 GMT, the Revised UoM Consumer Sentiment dropped to 67.2 and weighed on the dollar compared to the forecasted 68.8. The revised UoM inflation expectations remained flat at 4.9%. Most of the data from the US side was unfavorable, which added some strength to the GBP/USD.
The focus remained on politics on the UK front as Prime Minister Boris Johnson was facing pressure to resign as a police investigation was underway. On the other hand, the fascinating political drama had a little negative impact on Sterling, limiting further gains in the GBP/USD pair on Friday.
US Federal Reserve left policy unchanged
On the US front, the Federal Reserve left policy unchanged in January but made a notable change of tone toward the hawkish side. The meeting suggested that Powell was more hawkish than the market’s expectations, as he did not rule out the possibility that rate hikes could be made four times this year. As well as that, he also left the door open to 50bps rate hikes rather than the standard 25bps rate hike.
Russia-Ukraine tension in focus
The US dollar lost its safe-haven bets after the markets calmed on Russia-Ukraine tension. The diplomatic talks on this matter have dragged on while Russia has continued to deploy troops. The verdict of President Vladimir Putin is still unclear, but hopes have increased that any invasion will be delayed at least until after the Winter Olympics in Beijing. These expectations sparked risk appetite in the market, propelling riskier assets such as the GBP/USD higher on the board.
Additionally, the coronavirus’s easing conditions further favored the risk appetite. For instance, the number of coronavirus infections dropped significantly from their high levels, which provided hope that the worst of the pandemic was left in the past. In addition, it enabled the riskier asset GBP/USD to reverse course and recoup some of its previous losses on Friday.
GBP/USD price forecast – Daily technical levels
Support Resistance
1.3338 1.3451
1.3291 1.3517
1.3225 1.3564
Pivot Point: 1.3404
GBP/USD price forecast – 61.8% fibonacci retracement in play
The GBP/USD price forecast is bearish under an immediate resistance level of 1.3400. The surge in US dollar demand has triggered a sell-off in the GBP/USD pair and now it’s heading below the 61.8% Fibonacci retracement level at the 1.3385 level. The violation of 1.3385 can trigger a strong selling trend until the 1.3300 and 1.3265 marks. The closing of the daily candle under the 50-day EMA (exponential moving average) supports the selling trend. The RSI and Stoch RSI suggest a selling bias in the GBP/USD pair.
What if the demand for GBP/USD skyrockets?
A surge in demand could push the GBP/USD price towards the next resistance level of 1.3460 or 1.3530. However, the pair has formed a “bearish engulfing candle” that indicates strong odds of selling trend continuation. Therefore, the bias for the downtrend dominates under the 1.3395 level with a target of 1.3299 and vice versa.
Good luck, and stay tuned for more updates!
