GBP/USD Bears Eye Sub-$1.18 on Fresh Wave of COVID-19 Cases in China

It is a quiet day for the GBP/USD, with no economic indicators from the UK for the markets to consider.

The lack of stats leaves the Pound in the hands of market risk sentiment through the early part of the day.

While recent economic indicators have been bullish, the Pound has failed a return to $1.20. The latest OBR economic forecasts continue to mute the impact of positive stats on the Pound. With inflation hitting a 41-year high, BoE policy moves will likely deliver further economic woes.

Until the market sentiment toward the UK economic outlook improves, the GBP/USD will likely remain capped on the upside.

While there are no stats to consider, Bank of England chatter will draw interest. Monetary Policy Committee member Sir Jon Cunliffe speaks today. While the agenda relates to DeFi and digital currencies (cryptos), monetary policy forward guidance would influence the Pound.

GBP/USD Price Action

At the time of writing, the Pound was down 0.43% to $1.18360. A mixed start to the day saw the GBP/USD rise to an early high of $1.18968 before falling to a low of $1.18279.

The GBP/USD fell through the First Major Support Level (S1) at $1.1846. Risk-off sentiment weighed this morning on news of a wave of new COVID-19 cases in China.

Technical Indicators

The Pound needs to move through S1 and the $1.1898 pivot to target the First Major Resistance Level (R1) at $1.1949 and the Friday high of $1.19508. Risk-on sentiment and hawkish MPC member chatter would support a return to $1.19.

In the case of an extended rally, the GBP/USD would likely take a run at the Second Major Resistance Level (R2) at $1.1992 and $1.20. The Third Major Resistance Level (R3) sits at $1.2086.

Failure to move through S1 and the pivot would bring the Second Major Support Level (S2) at $1.1805 into play. However, barring a UK data-fueled sell-off, the Pound would likely avoid sub-$1.18. The S2 should limit the downside.

The Third Major Support Level (S3) sits at $1.1711.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.17638. The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S2 and the 50-day EMA ($1.17638) would support a return to $1.19 to target R1 ($1.1949). However, a fall through S2 ($1.1805) would bring the 50-day EMA ($1.17638) into play. The 200-day EMA sits at $1.15306.

The US Session

It is a quiet day ahead on the US economic calendar, with the Chicago Fed National Activity Index number the key stat of the day. However, the numbers are unlikely to influence the Fed or market risk sentiment.

Following last week’s hawkish Fed chatter, uncertainty over a December Fed pivot could deliver further dollar support.

The probability of a 75-basis point December rate hike had fallen to 14.6% before rising to 24.2% over the weekend. This morning, the likelihood of a 75-basis point rate hike stood at 19.4%.

While the US economic calendar shows no FOMC members speaking today, comments to the media need consideration. US unemployment and inflation support further front-loading. Hawkish Fed chatter would place further pressure on the GBP/USD.