(Eren Sengezer – FXStreet)
– GBP/USD clings to modest daily gains near 1.1200 on Monday.
– UK government will not go ahead with the plan to scrap a 45% rate of income tax.
– Key near-term support for the pair aligns at 1.1130.
GBP/USD has lost its bullish momentum and returned to the 1.1200 area after having climbed to its highest level in over a week at 1.1280 earlier in the day. The pair holds above the key support that aligns at 1.1130 and bulls could look to dominate the action as long as that level stays intact.
Earlier in the day, reports suggesting that the UK government was planning to reverse its plan to scrap the 45% rate of income tax for the highest earners provided a boost to the British pound. When UK Finance Minister confirmed that they will not go ahead with that plan triggered a ‘buy the rumour sell the fact’ market action and caused GBP/USD to retreat from its highs.
Despite this U-turn in fiscal policy, markets don’t seem to have regained confidence. The 10-year UK Treasury gilt yield stays relatively quiet near 4% following the sharp decline witnessed following the Bank of England’s intervention in the gilt market last week.
In the second half of the day, the ISM Manufacturing PMI for September will be featured in the US economic docket. The headline PMI is expected to arrive above 50 to show ongoing expansion in the sector’s economic activity. The Price Paid Index will be the key figure to watch. Following August’s steep decline, the inflation component is projected to edge lower to 51.8 from 52.5. A bigger-than-forecast drop could weigh on the greenback and help GBP/USD gain traction in the American session and vice versa. Meanwhile, US stock index futures are trading mixed, failing to provide a reliable signal regarding Wall Street’s opening action.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the four-hour chart holds near 60 and the 20-period SMA stays above the 50-period SMA, confirming the near-term bullish bias. Additionally, the ascending trend line coming from last Wednesday stays intact.
On the upside, the 100-period SMA forms immediate resistance at 1.1240 ahead of 1.1300 (Fibonacci 61.8% retracement of the latest downtrend). In case buyers managed to flip the latter into support, additional gains toward 1.1450 (200-period SMA) could be witnessed.
Supports are located at 1.1130 (Fibonacci 50% retracement), 1.1100 (psychological level) and 1.1000 (Fibonacci 38.2% retracement, 50-period SMA, psychological level).