POUND STERLING ANALYSIS & TALKING POINTS

• Quite trading day expected today with Fed speak on the docket.
• UK labor and US CPI takes the limelight tomorrow.
• Key psychological levels under threat.

GBPUSD FUNDAMENTAL BACKDROP

The British pound is marginally in the green against the euro and USD this Monday morning with no real overnight news leading the way. Overall, GBP remains under pressure against the two major currencies largely influenced by an aggressive ECB and Federal Reserve relative to the Bank of England (BoE). A strong US economy and an ECB that began their interest rate hiking cycle later than the rest has left the BoE in a more cautious position. Some worrying UK economic data has muted additional rate hikes post-March (see table below) and money markets now seem to favor a pause for the May meeting. That being said, core inflation remains sticky due to wage pressures so more emphasis will be placed on the services sector moving forward. While it is common knowledge that a tight monetary policy takes time to reflect in an economy, many BoE officials believe there is more after effects to come particularly in the housing market, as most UK mortgages are under fixed-term contracts.

BANK OF ENGLAND INTEREST RATE PROBABILITIES

Source: Refinitiv

The economic calendar for today is fairly light with just EZ consumer confidence on the docket while tomorrow will provide more substance to markets. PMI data for the eurozone. US and UK will be in focus while the ZEW economic sentiment index may provide some sustenance for the EUR should actual data fall in line or beat the previous print which was positive for the first time since February 2022.

ECONOMIC CALENDAR

Source: DailyFX Economic Calendar

On the political front, the UK Prime Minister Rishi Sunak has traveled over to Northern Ireland to make revision to the NI Protocol that could improve relations and trade with the EU giving the pound some provision.

TECHNICAL ANALYSIS

GBP/USD DAILY CHART

Chart prepared by Warren Venketas, IG

Daily GBP/USD price action has managed to hold its head above the 1.2000 psychological support handle but another breakdown could be on the cards depending on upcoming fundamental data. Wednesday’s FOMC minutes could bring a flurry of support for the greenback should if there is a hawkish slant to the report. Technically, a push below the 200-day SMA (blue) may well result in a significant pound sell-off pushing the Relative Strength Index (RSI) level into oversold territory.

Key resistance levels:

• 1.2407
• 1.2270
• 1.2154/50-day SMA
• 1.2100

Key support levels:

BULLISH IG CLIENT SENTIMENT

IG Client Sentiment Data (IGCS) shows retail traders are currently LONG on GBP/USD, with 56% of traders currently holding long positions (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 upside bias.

EUR/GBP DAILY CHART

Chart prepared by Warren Venketas, IG

EUR/GBP shows a similar short-term trend with the pound depreciating against the euro. The ascending channel has been closely following the 50-day SMA (yellow) as support now looking to breach the 0.8900 resistance level once more. Fundamentally, the ECB is likely to exhibit more aggressive measures in their monetary policy and that could keep the channel in play over the short/medium-term.

Key resistance levels:

Key support levels:

• 0.8852
• Channel support/50-day SMA

MIXED IG CLIENT SENTIMENT

IG Client Sentiment Data (IGCS) shows retail traders are currently SHORT on EUR/GBP, with 56% of traders currently holding short positions (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 cautious bias.

Contact and followWarrenon Twitter:@WVenketas