GBP/USD Technical Analysis: Severe Oversold Levels

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The price of the pound came under severe and widespread pressure as global stock and bond markets plunged. It came as events in Westminster sparked misguided speculation about UK-EU trade relations, creating a perfect storm for sterling assets. According to the performance of the foreign exchange market, the pound sterling fell and its biggest losses were due to the Indonesian rupiah, the South African rand, the Indian rupee and the Korean won, but with the American dollar and the euro closely behind them in that exact order. In the case of the GBP/USD currency pair, it has fallen to the support level of 1.1933, its lowest level in years, and is stabilizing around the 1.2000 level at the time of writing the analysis. .

Returning to our recent technical analysis for this pair, we mentioned that the chance of falling to the psychological support level of 1.2000 is very likely if it breaks through the support of 1.2165, which happened more than expected. .

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The losses were accompanied by stock and bond market declines, but they were also sharp and widespread enough to indicate the domestic impact of the action on the pound. “But with the Federal Reserve seemingly set to announce a massive 75 basis point hike tonight, and after the pound has already weakened to $1.22, we stick to our expectation of a increase of 50 points,” said Paul Dills, chief UK economist at Capital. Economy. base from 1.00% to 1.50%”.

The pound’s losses started early as figures from the Office for National Statistics (ONS) indicated that the UK labor market could cool faster than the Bank of England and others had expected. forecasters. According to the official announcement, the country’s unemployment rates fell from a multi-decade low of 3.7% in March to 3.8% in April, while measures of wage and salary growth in the Office for National Statistics were lower than economists had expected, just a day after other data indicated Britain’s economic growth could slow faster than expected.

The figures followed other figures released in May which showed UK inflation hit 9% in April, the highest level for price growth in several decades, but also below forecasts for the Bank of England by 9.1%, who find the same discrepancy. This is a critical situation ahead of Thursday’s Bank of England interest rate decision.

All the latest UK data suggests that economic demand is waning and there is a risk that the Bank of England could be tempted to raise rates by just 0.25% on Thursday, bucking earlier expectations. market recent.. Inclined towards a larger move of 0.50%. The above is a significant reason for the pound’s poor performance in the market, although it is appropriate that these losses come in the wake of the government’s introduction of national legislation to deal with the protocol. Northern Ireland and the risks it poses to stability in the province.

This protocol device was previously known as the “Northern Irish Backstop”, something that was widely misreported and misunderstood in the media and financial markets, meaning it could have contributed to the losses of the book Tuesday. This is a reasonable and practical solution to the problems facing Northern Ireland. It will protect the EU’s single market and ensure that there are no physical borders on the island of Ireland. We are ready to achieve this through discussions with the European Union. Foreign Secretary Liz Truss said: “But we can only move forward through the negotiations if the EU is willing to change the protocol itself – at the moment that is not the case.”

The UK government has moved to amend the Northern Ireland Protocol under Article 16 after 18 months of fruitless talks with the European Commission and members of the EU bloc.

According to the technical analysis of the pair: There is no doubt that the collapse of the price of the GBP/USD currency pair below the psychological support confirms the strength and control of the bears on the trend. Despite technical indicators moving towards strong and sharp saturation levels, forex investors won’t be thinking about buying demand except until the reaction to the US Federal Reserve’s announcement today and the Bank from England tomorrow. The two banks’ interest rate hike trajectory, in addition to the performance of global equity markets, are important factors in determining whether the current slump or rebound continues, even temporarily.

The closest support levels for the Sterling Dollar today are 1.1945 and 1.1830 respectively. Depending on the performance on the daily chart, it will be important to break the 1.2520 and 1.2700 resistance levels to change the current bearish outlook.

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