The Pound Stirling has recently retreated after testing its monthly high at around 1.3638, despite gaining ground against the US Dollar since late last month. In this article, we will discuss several factors that influenced the movements of the GBPUSD pair and perform technical analysis to identify potential support and resistance levels for the pair.
Being one of the major currency pairs, the GBPUSD is not spared from major movements of the USD, especially with its title of being a safe haven currency. The US Dollar Index (DXY) which measures the buck’s strength against a basket of rival currencies, staged a rebound on Tuesday to hover above 96 amid risk-aversion.
Russia-Ukraine tension continues to stir volatility
Since January this year, the world has been concerned with what seems like an imminent invasion of Ukraine by the Russian army. The risk aversion had caused riskier assets to tumble in prices as demand for safe haven assets like the US dollar soared amid the geopolitical risk. Early yesterday, market saw some fresh USD selling around the optimism on easing of the tensions following reports of both the US and Russian Presidents agreeing “in principle” to meet. Events took a quick turn last night as Russian President Vladimir Putin recognised the breakaway eastern Ukrainian territories as independent, setting a “pretext for a further invasion”, as described by US ambassador to UN.
The fresh uncertainty has sent market into risk off mood and has helped the US dollar edge higher against the British Pound.
Hawkish BoE amid strong economic recovery
Aside from the risk factor that buoys the US dollar, upbeat economic data in the UK as a result of a recovering economy is providing strength to the British pound. UK Manufacturing PMI for February came in at 57.3, higher than market consensus at 57.1. The Services PMI outperformed forecast of 53.7 by an even wider margin, posting 60.8 in February.
In addition, with the end of Covid restrictions in England this week, the economy is expected to continue its strong growth, expectations of a more hawkish Bank of England (BoE) will back the British pound.
Technical Analysis
GBPUSD’s gains remain capped by the descending trend line stretching back to July 2021. Technical indicators paint a bullish bias outlook for the pair. Relative Strength Index (RSI) is looking healthy as it is in the bullish territory around 56 after finding support above the neutrality line at 50. The Moving Average Convergence Divergence (MACD) also validates the bullish momentum.
Looking ahead, if the pair manages to break above the descending trend line, we would anticipate the pair to head towards R1 at 1.3638. In the event of a price reversal to the downside, S2 at 1.3484 is set to provide support for the pair.
Key events to watch this week:
Tuesday, February 22
GBP – BoE’s Ramsden speech
USD – Housing Price Index (MoM)(Dec), Markit Manufacturing PMI (Feb), Markit PMI Composite (Feb), Markit Services PMI (Feb), Consumer Confidence (Feb)
Wednesday, February 23
GBP – BoE Monetary Policy Report Hearings
Thursday, February 24
GBP – BoE’s Tenreyo speech
USD – Chicago Fed National Activity Index (Jan), Core Personal Consumption Expenditures (QoQ)(Q4), Gross Domestic Product Annualized (Q4), Gross Domestic Product Price Index (Q4), Initial Jobless Claims (Feb 18), Personal Consumption Expenditures Prices (QoQ)(Q4), New Home Sales (MoM)(Jan)
Friday, February 25
JPY – National Consumer Price Index (YoY)(Jan), National CPI ex Food, Energy (YoY)(Jan), National CPI ex-Fresh Food (
GBP – Gfk Consumer Confidence (Feb) USD – Core Personal Consumption Expenditures – Price Index (MoM)(YoY)(Jan), Durable Goods Orders (Jan), Nondefense Capital Goods Orders ex Aircraft (Jan), Personal Income (MoM)(Jan), Personal Spending (Jan), Michigan Consumer Sentiment Index (Feb), Pending Home Sales (MoM)(Jan)
Trade Forex on Phillip MetaTrader 5 (MT5).
Trade Forex at zero commission on Phillip MetaTrader 5, a dynamic platform that offers low spreads. Integrated with Acuity’s Signal Centre and Trading Central Indicators, and available on mobile and desktop app, you will never miss a trading opportunity with Phillip MT5.
Download Trading Central’s Market Buzz for updates on more topics.
What’s more? Phillip MT5 is now supported on Mac OS! To install, simply download the file below and complete a simple installation process.