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GBPUSD Current Growth may be Temporary

3/1/2023 2:14 PM

Since the beginning of February, the GBP/USD pair has been slowly correcting downwards amid the prospects for further tightening of monetary policy in the US and the deterioration of the British economy, and periodic attempts to start growth have not yet led to a change in trend.

At the beginning of this week, the pound strengthened its position after the conclusion of a new trade agreement between the UK and the EU, which should soften the mutual customs checks of goods and promote the growth of trade between them but the situation in the national economy remains difficult, so in the long term, pressure on the position of the currency is likely to continue. High inflation, now five months above 10.0%, is forcing the Bank of England to raise interest rates, exacerbating recession risks and negatively affecting mortgages and the construction market, as confirmed by today's publication of the Nationwide House Price Index for February, which amounted to –0.5% MoM and reached –1.1% YoY and went into the negative zone for the first time since 2020. During the day, the release of the Manufacturing PMI for February is also expected: the index may rise from 47.0 points to 49.2 points, that is, the slowdown in the sector will continue but will be small.

The dollar is currently looking better than the pound as the US economy is more stable due to a strong labor market and high consumption levels, allowing the US Federal Reserve to keep raising interest rates, hoping that they will not lead to a serious recession. The agency will continue to tighten monetary policy, as the fundamental prerequisites for the resumption of inflation growth remain. Today, investors are waiting for the publication of data on business activity in the industry from the Institute of Supply Management (ISM): according to forecasts, the indicator will remain in the stagnation zone but will rise from 47.4 points to 48.0 points.

The trading instrument is trying to consolidate above the middle line of Bollinger bands to continue rising to 1.2207 (Murrey level [4/8]) and 1.2329 (Murrey level [5/8]). The key "bearish" level remains 1.1962 (Murrey's level [2/8]), which the price has been unsuccessfully testing during the past month. In case of its breakdown, the decline will continue to 1.1840 (Murrey level [1/8]) and 1.1718 (Murrey level [0/8]).

Technical indicators do not give a single signal: Bollinger bands are directed downwards, Stochastic moves upwards, and the MACD histogram is stable in the negative zone.

Resistance levels: 1.2207, 1.2329. | Support levels: 1.1962, 1.1840, 1.1718.

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