GBP/USD Price Forecast: A return to $1.20 to Bring $1.2150 into View

It was a quiet morning, with no UK economic indicators to provide direction to the Pound. Later today, CBI Industrial Trend Orders for July are due but will likely have a muted impact on the GBP/USD pair.

The Bank of England remains focused on wage growth and other sub-components of inflation.

On the monetary policy front, there are no central bankers due to speak. Following better-than-expected private sector PMI numbers for July, the BoE looks set to deliver on its monetary policy expectations on Thursday.

From the July prelim survey, reports of staff shortages and consumer price inflation northwards will be a bugbear.

According to the survey, “service providers mostly noted that intense wage pressures due to short shortages of staff and rising consumer price inflation had continued to push up their cost burdens.”

In June, Bank of England Chief Economist Huw Pill warned that the BoE would raise interest rates more aggressively to curb soaring inflation if there were signs of a wage-price spiral taking hold or if companies continued to raise their prices.

Talking to Bloomberg TV, Pill said,

“If we see greater evidence that the current high level of inflation is becoming embedded in pricing behavior by firms, in wage-setting behavior by firms and workers, then that will be the trigger for this more aggressive action.”

GBP/USD Price Action

At the time of writing, the Pound was down 0.09% to $1.19931.

This morning, the Pound fell from an early high of $1.20238 to a low of $1.19606 before finding support.

Technical Indicators

The Pound needs to move through the $1.1994 pivot to target the First Major Resistance Level (R1) at $1.2073.

A pickup in appetite for riskier assets would support a breakout from the Friday high of $1.20636.

An extended rally would test the Second Major Resistance Level (R2) at $1.2142 and resistance at $1.2150. The Third Major Resistance Level (R3) sits at $1.2290.

Failure to move through the pivot would bring the First Major Support Level (S1) at $1.1925 into play.

Barring an extended sell-off, the Pound should steer clear of sub-$1.19 and the Second Major Support Level (S2) at $1.1846.

The Third Major Support Level (S3) sits at $1.1699.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal.

At the time of writing, the Pound sat above the 50-day EMA, currently at $1.19624.

The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bullish GBP/USD signals.

A move through the 100-day EMA, current at $1.19971, and the pivot would bring R1 and the 200-day EMA, currently at $1.21095, into play.

However, a fall through the 50-day EMA would test S1 and buyers at $1.19.

The US Session

Later today, there are no US stats for the markets to consider. A lack of stats and FOMC member commentary will leave investors to reflect on the latest private sector PMIs and whether they were enough to force the Fed to deliver a 50-basis point interest rate hike.