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GBP to USD Forecasts: Bulls to Target $1.22 on Softer US Inflation

By:
Bob Mason

It is a relatively quiet day for the GBP/USD, leaving US inflation and personal spending and FOMC member chatter to provide further direction.

GBP/USD - technical analysis - FX Empire.

In this article:

It is a quiet day for the GBP/USD. House price figures and finalized manufacturing PMI numbers for November will be in focus.

Barring a sharp fall in house prices, revisions to the manufacturing PMI should have more influence on the Pound.

Recent central bank commentary has suggested that inflation may be peaking, which could see economic data have more impact on the GBP/USD.

While the headline number will influence, investors should consider sub-components, including delivery times, input and output prices, and new orders.

Ahead of today’s stats, economic data and updates on China’s zero-COVID policy will set the tone as investors respond further to Powell’s speech. Later this morning, the Caixin Manufacturing PMI could test market risk appetite. Economists forecast the PMI to fall from 49.2 to 48.9.

However, while today’s economic indicators will influence, there are no BoE Monetary Policy Committee member speeches to consider today. Nonetheless, investors will need to monitor any comments to the media.

GBP/USD Price Action

At the time of writing, the Pound was up 0.10% to 1.20673. A bullish start to the day saw the GBP/USD rise to an early high of $1.20770.

GBP to USD on the move.
GBPUSD 011222 Daily Chart

Technical Indicators

The Pound needs to avoid the $1.2014 pivot to target the First Major Resistance Level (R1) at $1.2128. Risk-on sentiment and an upward revision to the manufacturing PMI would support a bullish session.

In the case of an extended rally, the GBP/USD would likely test the Second Major Resistance Level at $1.2201. The Third Major Resistance Level (R3) sits at $1.2388.

A fall through the pivot would bring the First Major Support Level (S1) at $1.1941 into play. However, barring an extended risk-off-fueled pullback, the GBP/USD should avoid sub-$1.19 and the Second Major Support Level (S2) at $1.1827.

The Third Major Support Level (S3) sits at $1.1641.

GBP to USD resistance levels in play above the pivot.
GBPUSD 011222 1 Hourly Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.19700. The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.19700) would support a move through R1 ($1.2128) to target R2 ($1.2201). However, a GBP/USD fall through the 50-day EMA ($1.19700) would likely see the Pound fall through S1 ($1.1941) to bring the 100-day EMA ($1.18595) and S2 ($1.1827) into view. The 200-day EMA sits at $1.17047.

EMAs bullish.
GBPUSD 011222 4-Hourly Chart

The US Session

It is a busy day ahead, with inflation, personal spending, ISM Manufacturing PMI, and weekly jobless claims due. Barring a sharp fall in jobless claims, we expect the inflation and spending numbers to have more influence on the dollar.

Following Powell’s talk of slowing the pace of interest rate hikes, an unexpected spike in the Core PCE Price Index could deliver uncertainty over a Fed pivot. Economists forecast the Core PCE Price Index to rise 5.0% year-over-year versus 5.1% in September.

With inflation and personal spending in the spotlight, FOMC member chatter will also need tracking, with FOMC members Barr, Logan, and Bowman speaking today. Hawkish commentary would test the pivot theory.

According to the FedWatch Tool, the probability of a 75-basis point rate hike sits at 24.2% versus 33.7% one day earlier.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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