The GBP/USD has been in a continuous corrective movement since February 1 and has lost 3.3% since the beginning of the month. Thus, the second attempt of the bulls to overcome the 1.2433-US dollar level also failed. With the second correction (the first was a 4.4% drop in price from mid-December to mid-January), a double-top pattern is now visible, which may point to further corrections, including below $1.19 support.
It is worth mentioning the positive monthly employment data from the U.S., which brought about a strong recovery momentum of the U.S. dollar. Moreover, many investors now seem convinced that the FED will stick to its restrictive stance for longer, which was confirmed by Friday’s blockbuster U.S. NFP report. This should provide a tailwind for U.S. bond yields and give the USD some support. This in turn should keep the GBP/USD in check, at least for the time being.
In addition, the Bank of England signaled last week that it was about to pause the current rate hike cycle. In addition, BoE Governor Andrew Bailey said inflation should fall even faster this year and in the second half of 2023. This raises speculation that the current cycle of interest rate hikes may be nearing its end and gives impetus to the short-term bear market.
If the price continues to be bearish now, a decline to the $1.19 level would be very likely. However, since the double top pattern is not yet complete, rises that interrupt the price decline cannot be ruled out. The $1.21 area could act as resistance here.
In the further course, no relevant market-moving economic data are due for publication on Tuesday, neither from the UK nor from the US. Therefore, the focus later during the FED meeting will be on Chairman Jerome Powell’s speech.