GBP/USD off lows following another bruising session

The GBP/USD slumped by more 250 pips today, before bouncing off its lows at the time of writing. The slide was more of a dollar-rebound story rather than about the pound, although the cable was among the weakest of the majors. This points to inherent weakness for the pound as the post-BoE rally fades and investors question whether the BoE’s simultaneous hiking and temporary bond buying is going to be effective in keeping the pound afloat. Still, the impressive recovery from a record low means the worst of the selling could be behind us.

It wasn’t just the pound that sold off today. We saw big falls in major indices, silver and the like, before everything bounced from their worst levels after Europe closed. In other words, today’s market action has been what we have become accustomed to in the past year: lots of volatility.

Today’s price action has also been the reverse of the trend we saw at the start of the week when everything rallied hard on the back of speculation the Fed might ease off the rate hikes.

However, a couple of Fed officials have come out and dismissed those talks, while today’s stronger ISM PMI report, plus the OPEC’s big output cut (which is boosting oil prices and is thus inflationary) certainly argues for higher interest rates for longer. Consequently, we have seen stocks get sold again, along with gold, silver and foreign currencies – not least the pound.

As we have mentioned before, the BoE is pressing the brake and accelerator at the time. This argues against a strong pound recovery in what is a bearish macro environment in the UK. The BoE’s objective is first and foremost to restore orderly market conditions. While the UK bond market may have calmed down due to the actions of the BoE, expect to see continued volatility in the beleaguered currency.

Today’s reversal in the GBP/USD means we have an uncompleted bearish engulfing candle on the daily time frame, after the rally ran out of steam around the 1.15 handle and the March 2020 low of 1.1410ish. If the GBP/USD closes today’s session below Tuesday’s low of 1.1280, then the engulfing candle will be confirmed. As a result, we will likely see downside follow-through in the days ahead. There’s no obvious support below here until the 1.10 handle, with 1.0915 also an important level to watch should we get there.

On the upside, if price holds above 1.1280, then a revisit of the March 2020 low of 1.1410 could be on the cards. The post-BoE V-shaped recovery certainly provides some hope that the worst of the selling may be over.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.