GBP/USD Technical Analysis: Attempts to Break Trend

The GBP/USD exchange rate has been on a fast track lately, but may find itself better supported if there is a determined attempt by the People's Bank of China (PBoC) to stabilize the renminbi rate over the Golden Week holiday. Prior to that, Sterling fell to all-time lows against the dollar and other currencies last Monday in price action which all observers initially linked to the previous Friday's UK budget announcement from Chancellor Kwase Quarting.

For four trading sessions in a row, the price of the GBP/USD currency pair is moving amid an upward rebound with gains that extended to the resistance level 1.1325, the highest in two weeks.

USD Rally is Extended

There is reason to believe that the start of the week was nothing more than an interaction between speculative bets against the RMB and the insufficient liquidity of the pound in Asian trading hours, while it is noticeable that the pound rose last week against all the G10 currencies. Commenting on the performance, Jonas Golterman, chief market strategist at Capital Economics wrote, “During another turbulent week in financial markets, the US dollar has fallen again over the past two days after the Bank of England intervened (in the gold market) and the People's Bank of China (in the renminbi) provided a degree of Comfort across stocks, bonds, and currency markets,” the analyst added, “It appears that the US dollar’s ​​rally is increasingly extended and we believe there is room for further consolidation. But with Fed officials continuing to beat their hawkish drums, the main underlying driver of dollar strength remains intact and the risk of the self-reinforcing dollar continuing to melt remains high.”

While many saw the GBP/USD recovery over the past week as a result of last Wednesday's intervention in the British government bond market from the Bank of England (BoE), most may have underestimated the importance of the People's Bank of China's intervention in the market. currencies.

Indeed, this must-read report from Reuters means that one is symptomatic of the other that cannot be judged as the agency cited four sources on Thursday to report that China's state-owned banks have been instructed to prepare to sell dollars in the overseas market. to support the renminbi. Meanwhile, data from two of the world's largest interbank currency trading platforms indicated that Thursday's Reuters report did not emerge until a day or so after direct intervention preparations had already begun, while also noting that the dollar index had already taken place. Then it happened on Thursday and Friday last week.

This could have potentially significant implications for price movement throughout the US dollar complex because the goal of the floating managed renminbi system is to keep the Chinese currency “essentially stable” with respect to the various parts of the China Foreign Exchange Trade Index (CFETS) system.

In such a scenario, it would be appropriate for China to dominate the top level of the international league table when banks are listed according to the size of their balance sheets while the People's Bank of China (PBoC) itself has the world's largest foreign exchange reserve fund valued at just over 3 trillion dollars in August. This means that the authorities in Beijing will have more than enough resources to prop up the yuan, although doing so may not be as difficult as many might imagine when the speculative market already has the chips stacked above the dollar.

Sterling dollar forecast today:

• On the daily chart below, the price of the GBP/USD currency pair is moving in the direction of an ascending channel that was formed recently.
• The bulls still need more momentum to confirm that the general trend is to the upside, and that may be in case the prices move towards the resistance levels 1.1385 and 1.1560 on the straight.
• On the other hand, and over the same time period, the breach of the 1.0990 support level will be important to confirm the bears that they are in control for a longer period and therefore the current bullish hopes evaporate. I still prefer selling sterling dollars from every bullish level.

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