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GBP Slips on UK Housing Costs & World Danger Aversion

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POUND STERLING TALKING POINTS

  • China retort to Pelosi/Taiwan in focus!
  • UK housing price growth misses estimates.

GBP/USD FUNDAMENTAL BACKDROP

The pound dropped off on Tuesday after a rather ‘risk on’ start to the week. The Asian session sparked fears around China’s reaction to U.S. House Speaker Nancy Pelosi’s visit to Taiwan as Mainland China and President Xi Ping has high hopes for uniting the two nations. Should this situation escalate, we could see further pound weakness against the greenback as investors look for safety. The specifics and consequent reaction from the visit could give us key insights to the mindsets of the involved countries regarding global market price action.

UK housing prices missed forecasts on both YoY and MoM data which may hint at greater demand for property due to increased pressure on the consumer from higher interest rates. This being said, the overall statistic shows a slight increase in housing price growth but future releases could see the effect of dented consumer confidence filter through.

GBP ECONOMIC CALENDAR

uk NATIONWIDE HOUSING PRICES

Source: DailyFX Economic Calendar

Less than expected inflationary pressures may well keep Thursday’s Bank of England (BoE) meeting interesting although consensus favors a 50bps rise (see table below). The fact that the rate hike is largely priced in already with an unlikely scenario of a hawkish surprise means that the pound may not find significant upside support. We have seen this currency weakness response with many other central banks around the globe and Thursday may not be any different.

BOE INTEREST RATE PROBABILITIES

bank of england interest rate probabilities

Source: Refinitiv

TECHNICAL ANALYSIS

GBP/USD DAILY CHART

gbp/usd daily chart

Chart prepared by Warren Venketas, IG

The daily GBP/USD chart above shows a confirmed breakout above the longer term trendline resistance (black). I do not think this will spark a move above the 1.2400 psychological zone but we are more likely to see a consolidatory move post-BoE between 1.2080 and 1.2400 respectively. This slowing bullish momentum may coincide with the Relative Strength Index (RSI) moving into overbought territory thus capping pound strength.

Key resistance levels:

  • 1.2400/ 100-day EMA (yellow)

Key support levels:

  • 50-day EMA (blue)
  • 1.2080 (76.4% Fibonacci)/ 20-day EMA (purple)

BULLISH IG CLIENT SENTIMENT

IG Client Sentiment Data (IGCS) shows retail traders are currently LONG on GBP/USD, with 64% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however due to recent changes in long and short positions we settle on a short-term upside bias.

Contact and follow Warren on Twitter: @WVenketas





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