– GBP/USD has retreated toward 1.2500 in the early European session.
– The pair faces the next significant support at 1.2480.
– ECB’s policy announcements could ramp up the market volatility.
GBP/USD has continued to edge lower toward 1.2500 early Thursday after having registered modest losses on Wednesday. The pair stays within a touching distance of the critical 1.2480 support and sellers could take action if that level turns into resistance.
The greenback managed to stay resilient against its rivals mid-week on the back of rising US Treasury bond yields and caused GBP/USD to lose its traction. In the European morning, the risk-averse market environment is making it difficult for the pair to stage a rebound.
The UK’s FTSE 100 Index is down 0.6% on the day and US stock index futures post small daily losses as investors gear up for the European Central Bank’s (ECB) policy announcements.
In case the ECB delivers a hawkish surprise by confirming a 50 basis points rate hike in July, the euro is likely to trigger capital outflows from the British pound and the dollar alike. Although the greenback is likely to face a stronger selling pressure than the GBP in that scenario, a big jump in EUR/GBP could limit GBP/USD’s upside.
On the other hand, the pound could find it difficult to attract investors in case the ECB adopts a cautious policy stance by revising growth forecasts lower amid the uncertainty surrounding the Bank of England’s (BOE) policy outlook. In that case, renewed dollar strength should cause GBP/USD to turn south.
GBPUSD Technical Analysis
Below the 1.2500 psychological level, 1.2480 (Fibonacci 38.2% retracement of the latest uptrend, 200-period SMA) aligns as key support. In case the pair drops below that level and starts using it as resistance, it could target 1.2420 (Fibonacci 50% retracement) and 1.2400 (psychological level) next.
On the upside, stiff resistance seems to have formed at 1.2550 (100-period and 50-period SMAs on the four-hour chart, Fibonacci 23.6% retracement). A four-hour close above that level could bring in buyers and open the door for an extended rebound toward 1.2600 (static level, psychological level).
Source: Eren Sengezer – FXStreet