The GBPUSD rallied early Friday morning after a 5-session drop to 1.2414. The pair rose +0.90% early European session from a 22-months low as dollar strength recedes on the surprise contraction of the US economy on Thursday.
Investors are pricing in a 25bps rate hike by the BoE next week as the UK continues to battle skyrocketing inflation. The Fed is also set to hike its interest rates on Wednesday by 50bps although surprises can be expected as growth concerns loom.
Traders shift their focus on Personal and Consumer Expenditure data for the US due for release in the New York session.
The GBPUSD bounced off a 22-months low at 1.2414 reclaiming 1.2550 early Friday session. The pair is currently bearish since breaching the 1.2675 area, September 2020 lows renewed selling pressure towards a 2-year low.
There remains a possibility of trading lower as the Euro-area energy embargo with Russia continues to cause supply shocks pushing inflation to higher levels. Bears may target the 1.21000 as Dollar hawkishness continues to underpin Pound strength.
However, a break above the 1.3000 area will reinforce a bullish outlook in the near term as the weekly chart shows the GBPUSD has been in a corrective phase since May 2021 peak as indicated by the falling channel.
The GBPUSD pared Thursday losses as the pair rebounded from the 22-month low. Upside gains face a near-term barrier at 1.2600 and a break above that area may see bulls rallying towards 1.2680, previous resistance.
The pair is experiencing a near-term correction as the RSI indicator shows the GBPUSD is extremely oversold. The purple line bounced off a 20 reading which shows extreme bearish conditions, and the pair is due for a mid-term correction.
A defence of the 1.2450 is necessary to maintain a bullish outlook towards the 1.2680 area. A break above that resistance may see bulls aiming for further gains towards the 1.2800 psychological barriers.
However, the Williams alligator indicates that the pair has a bearish outlook and a break above 1.3000 is necessary to change to market outlook to bullish in the near term.
Therefore, the monetary policy meetings for the 2 central banks will be critical to the direction of the pair in the near term.