This week, the GBP/USD pair is recovering its positions after a serious fall at the beginning of the month caused by strong US labor market data and a slowdown in business activity in the UK against the background of the Bank of England's interest rate decision.
It is worth noting that the fundamental background does not contribute to price growth, so the potential movement of the trading instrument is seen as limited. Investors are concerned about a possible change of intentions of US Fed officials: if before the meeting of the regulator it was believed that it would continue to slow down the pace of monetary policy tightening or suspend it altogether, then after the release of strong employment data on Friday, the rhetoric changed. The head of the department Jerome Powell noted that despite the beginning of the disinflation process, if significant activity in the labor market persists or if inflationary growth resumes, the US Fed may raise the interest rate higher than it is currently expected. Similar comments were later made by the president of the Federal Reserve Bank of New York, John Williams, and the governor of the US Fed, Christopher Waller. Such a scenario of actions will lead to a further strengthening of the USD against competitors.
As for the pound, its position remains difficult. Last week, the Bank of England raised the interest rate to 4.0% amid a slowdown in business activity in the leading economic sectors, which is exacerbated by the strongest price growth among developed economies and a wave of protest actions. Bank officials believe that the recession in the country will come at the beginning of this year, but investors admit that the economic downturn has already begun. Also on Friday, preliminary data on the gross domestic product (GDP) of the UK for Q4 2022 will be published, and in case of a reduction in the indicator, a technical recession is likely to occur.
Despite the absence of fundamental prerequisites, technically further growth of the pair is possible, but it looks limited to the levels of 1.2207 (Murray level [7/8]) and 1.2260 (the middle line of the Bollinger Bands). The key level for the "bears" is 1.1962 (Murray level [2/8]), consolidation below which will give the prospect of further decline to the area of 1.1840 (Murray level [1/8]) and 1.1718 (Murray level [0/8]).
Technical indicators do not give a single signal: the Bollinger Bands are reversing downwards, and the MACD histogram has moved into the negative zone, confirming the formation of a new downward trend, but the Stochastic is reversing upwards.
Resistance levels: 1.2207, 1.2260. | Support levels: 1.1962, 1.1840, 1.1718.