GBP/USD Price Forecast: A Return to $1.2250 to Bring $1.2350 into Play

It is another quiet morning on the UK economic calendar. UK mortgage and consumer credit data are due later this morning. However, the numbers are unlikely to provide direction to the Pound.

Market sentiment towards monetary policy and a possible shift in policy divergence in favor of the Pound should continue to deliver GBP/USD support.

Thursday’s US GDP numbers raised more question marks over the Fed’s ability to aggressively move beyond normalization to bring inflation to target.

UK economic indicators have fared better until now, allowing the Bank of England to take a more aggressive interest rate path.

However, US inflation and personal spending figures, due later today, could force the Fed to deliver on its goal to bring inflation to target at any cost.

GBP/USD Price Action

At the time of writing, the Pound was up by 0.36% to $1.22206

This morning, the Pound fell to an early low of $1.21621 before rising to a high of $1.22449.

The Pound broke through the First Major Resistance Level (R1) at $1.2211 to test the Second Major Resistance Level (R2) at $0.2245 before easing back.

Technical Indicators

The Pound needs to hold above R1 and the $1.2157 pivot to retarget the Second Major Resistance Level (R1) at $1.2245.

Going into the European session, a pickup in appetite for riskier assets would support a return to $1.2240.

An extended rally would test resistance at $1.23 and the Third Major Resistance Level (R3) at $1.2333.

A fall through R1 and the pivot would bring the First Major Support Level (S1) at $1.2123 into play.

Barring an extended sell-off, the Pound should avoid sub-$1.2050. The Second Major Support Level (S2) at $1.2069 should limit the downside.

The Third Major Support Level (S3) sits at $1.1980.

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

At the time of writing, the Pound sat above the 200-day EMA, currently at $1.21076.

The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering positive signals.

A narrowing of the 50-day EMA to the 200-day EMA should support a move through R2 to target $1.23 and R3.

However, a fall through the 200-day EMA would test S1 and support at $1.21.

The US Session

It is a busy day ahead for the US Dollar, with inflation and personal spending figures due. Following the Q2 GDP numbers, the markets are betting on a slower pace of interest rate hikes this year. However, another spike in inflation would question the shift in sentiment, with the Fed talking of bringing inflation to target at any cost.

Personal spending will also need considering, with a fall likely to add further question marks over the US economic outlook.