POUND STERLING ANALYSIS & TALKING POINTS
- BoE being ‘hawkishly’ re-priced but will UK data support higher rates?
- UK S&P Manufacturing PMI expected to decline.
- GBP/USD daily chart suggests impending rising wedge breakout.
GBPUSD FUNDAMENTAL BACKDROP
The British pound will be largely subject to USD factors from a cable perspective this week but today’s economic calendar will carry some UK specific data points giving the Bank of England (BoE) additional data points before their interest rate decision next week. The morning kicked off with the pound clawing back some last gains after yesterday’s strong US ISM Manufacturing PMI for April and the UK’s bank holiday. Upside stemmed from a better than expected Nationwide housing prices figure (see calendar below) and a 5% terminal rate for the 2023 hiking cycle as shown in the BoE’s interest rate probability table below. Later today, UK manufacturing PMI could bring about some short-term volatility but markets are likely to remain rangebound ahead of tomorrow’s Fed rate decision.
Daily GBP/USD price action remains within the developing rising wedge chart pattern (black) – traditionally a bearish continuation formation that is preceded by a downtrend; however, the level of conviction is minimized in this case due to a preceding uptrend. That being said, downside is favored with the Relative Strength Index (RSI) and cable prices indicative of bearish divergence.
Key resistance levels:
- 1.2667
- 1.2500
Key support levels:
- Wedge support
- 1.2400
- 1.2345
BEARISH IG CLIENT SENTIMENT
IG Client Sentiment Data (IGCS) shows retail traders are currently net SHORT on GBP/USD with 55% of traders net short (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short-positioning, we arrive at a short-term downside bias.
