GBP/USD anticipates an upturn towards 1.2250

9 oct 2023

GBP/USD continued its decline following the bearish opening, dropping below 1.2200 on Monday. This was attributed to the strengthening of the US dollar amid escalating geopolitical tensions in the Middle East and speculations of a more restrictive Fed monetary policy. The Relative Strength Index (RSI) on the 4-hour chart remained above the 50 level despite the decline. Key resistance is set at 1.2200 (psychological level and 23.6% Fibonacci retracement). If the pair stays below this level, potential tests include 1.2150 (50-period Simple Moving Average), followed by 1.2120 (upper limit of a broken descending regression channel) and 1.2100 (psychological level, static level). However, if GBP/USD rises and stabilizes above 1.2200, it may encounter resistance at 1.2230 (100-period Simple Moving Average) before reaching 1.2250 (static level). Last week, GBP/USD closed nearly unchanged after a steady rebound in the latter part of the week. The new week began with a bearish gap and a decline below 1.2200 due to a flight to safety, prompted by escalating tensions in the Middle East. The US Dollar (USD) gained from safe-haven flows, causing the USD Index to rise above 106.50 after a recent three-day slide. Notably, Israel responded to Hamas rocket attacks from the Gaza Strip, resulting in a death toll exceeding 1,100. The USD benefited from safe-haven demand, and the USD Index rose 0.4% on the day, recovering from its previous week's decline. On this day, US bond markets were closed for Columbus Day, while stock markets remained open, potentially influencing USD valuation. A bearish trend in US stocks could further bolster the USD's strength during the American session. Federal Reserve Governor Michelle Bowman emphasized the need for continued tightening of monetary policy to maintain inflation at the 2% target. The US economic calendar lacked significant releases, directing investor focus toward risk perception. Additionally, in the market, we have a price that bounced back to the 1.2160 level, where we have a bullish trendline and a bullish divergence on the 15-minute chart, indicating a clear bullish view up to 1.223-1.225. Let me know what you think, happy trading from Nicola, the CEO of Forex48 Trading Academy.