GBP/USD: Pound in a tough resistance zone. Pullback in sight?

CAPITALCOM:GBPUSD   British Pound / U.S. Dollar
The British pound has staged an impressive 18% rebound since its September's lows and is now entering a pivotal week given the upcoming Fed's (Wednesday) and BoE's (Thursday) meetings.

Even though the latest signs of economic activity are mostly better or in line with expectations, they actually show that the economy is slowing down and that a recession is getting closer and closer. Following a 0.6% decline in September 2022, the UK GDP increased 0.5% in October, the largest growth in over a year and slightly above predictions of 0.4%. The service sector, which continues to be resilient, had the greatest expansion. Instead, industrial production in October 2022 was flat from the previous month, following a 0.2% decline in September, which also matched market expectations.

Continuing growth uncertainties and housing market jitters might have future dovish consequences for the BoE. On Thursday, it will be important to know if the differences between board members that have already come up are getting bigger. At the last BoE meeting, the vote to raise 75 basis points was divided (7-2).
Markets are pricing in 56 basis points, thereby fully expecting 50bps. As a result, anything less than 75bps will be a marginally negative outcome for the pound.

A hawkish Fed and a dovish BoE will have a negative impact on GBP/USD , which has recently re-established its correlation with the 2-year yield differential after decoupling from August to October.

How to tactically trade GBP/USD this week: Key technical levels to watch

The cable technically broke above the 200-day moving average (1.211) and has remained above it since the beginning of the month.

As we get closer to a crucial resistance area around 1.225-1.24, which corresponds to June highs and a 6-month 100% Fibonacci retracement level, the bullish wave is beginning to lose some of its momentum.

Following the solid rally since November, the upside potential for the pound looks to be rather stretched, and this week's rising risks of a hawkish Fed and USD bullish sentiment may lead to some pullbacks to 1.20 or lower.

1.196 is an intriguing initial line of support to keep an eye on, corresponding to the 78.6% Fibonacci level and the -1std of the 20dma Bollinger band . If cable fails to hold there, 1.161 (61.8% Fibonacci) might be a month-end target.


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