GBP/USD could see selling pressure in American Session

Today is a calm beginning to the week for GBP, with the spotlight on the BOE Gov Bailey Speaks. The GBP/USD pair gained momentum early in the European morning after a calm Asian session on Monday as the Dollar steadied due to increased banking confidence. However, the technical analysis shows that the forex pair might experience a selling wave in the American Trading session.

Key Takeaways:

• It was a bullish Monday, with GBP/USD increasing by 0.19% at $1.2253.
• Fed officials signalled that interest rates might increase at least twice more before June
• GBP/USD currency pair maintained its bullish momentum as traders waited for Andrew Bailey’s speech.
• A selling Wave is expected in the American Trading Hours.
• Head and Shoulder Pattern in H4 chart.

Uncertainty around Fed kept GBP/USD high in the early session

The leading lender in Germany, Deutsche Bank, continued to draw attention from the market as the next possible target of the banking crisis. Credit default swaps, the cost of insuring a bank against a future credit crisis, reached near five-year highs last week. It led to a massive sell-off of Deutsche’s shares.

Furthermore, remarks made by Federal Reserve officials over the weekend hinted that the central bank might raise interest rates at least twice more by June. However, given the increasing economic challenges brought on by a global banking crash, policymakers also expressed worry about how much room the bank still had to raise rates.

Raphael Bostic, president of the Atlanta Fed, responded to the central bankers’ comments by saying that increasing the policy rate was not an easy decision, and he did not anticipate an economic slowdown. Bostic of the Fed asserts that the Fed must control inflation.

Neel Kashkari, president of the Minneapolis Fed, stated on Sunday that the current stress in the banking industry and the potential for a new credit crisis had taken the US closer to recession.

Furthermore, several Fed officials stated that the Fed might increase interest rates twice. However, there is still uncertainty over US monetary policy as authorities take steps to halt any consequences on the banking industry.

The Dollar Index (DXY) steadied around 1.03.10 due to uncertainty in US monetary policy. The dollar’s decline strengthened the GBP/USD.

The markets will watch for clues of how the next reading of the CB Consumer Confidence, coming Tuesday, and the personal consumption expenditures (PCE) price index, due Friday, will affect the Fed’s rate decisions.

Traders are awaiting key indicators; Bailey’s Speech on Focus

In the United Kingdom, inflation unexpectedly increased in February, with the increase in consumption signalling demand-driven pricing pressures in the short term. Therefore, the Bank of England (BOE) announced the anticipated 25 bps hike on Thursday last week. The bank also hinted that it might be the final hike, though it left the door open for more.

Moreover, last Friday,  Andrew Bailey, the governor of the BOE, stated that the global banking industry is better than in 2008. According to Bailey, who also noted that the likelihood of a recession in 2023 has significantly decreased, there is evidence of good progress on inflation. The words leave the door open for more rate increases, improving market sentiments. The probability that the UK central bank will announce a rate increase of 50 basis points (bps) at the upcoming monetary policy meeting is estimated to be around 85%, according to the BOEWatch tool. As a result, futures pricing favours the Pound Sterling over the US Dollar, boosting GBP/USD currency pair.

Looking ahead, Bailey will speak later on in the day. He will speak at the London School of Economics and impact the GBP/USD exchange rate around the end of the US trading session. After the better-than-anticipated retail sales on Friday and the concerns surrounding the banking sector, Bailey has a lot to talk about.

Moreover, the final print of the UK’s Q4 quarterly GDP data is scheduled to be released on Friday. A significant deviation might affect GBP/USD, although it is unlikely to have much of an impact on the GBP if it prints as predicted.

GBP/USD Technical Analysis

The forex pair GBP/USD is hovering at the 1.2770 level, where the 20-Period Simple Moving Average (SMA) and the lower limit of the ascending regression channel align. Furthermore, it is also the same level where the right shoulder of the Head and Shoulder Pattern is forming. It gives an indication of potential downside pressure ahead.

The MACD and Stochastic Indicator also confirm these signals. The Moving Average Convergence and Divergence, along with the Stochastic Oscillator, are in bearish configuration, with MACD curving downside towards zero line and Stochastic in the overbought zone. On the other hand, the Relative Strength Index (RSI) is slightly above the mid-level at 55, which gives an indication of a bullish buildup ahead.

The mixed signals in the market suggest it might be time to wait and watch for confirmation of one signal before entering a position. However, the near-term action is anticipated to remain sideways, with the first resistance at the 1.22753 level (20-SMA). If the pair breaks above this level and begins using it as support, it will target the 1.23015 level.

On the downside, the pair is getting initial support from the 1.22304 level. Any break below this level will drag the prices towards the 50-Period SMA at 1.22079. This is also the same level where the right shoulder of the Head and Shoulder Pattern is expected to end. Any break below this level could extend the downturn towards 100-SMA.

Overall, there are more chances of a selling wave in the American Trading Session. Any drop below the 1.22300 level could raise continuation selloff.