GBP/USD Forex Technical Analysis – UK Budget Woes, Fed Rate Hike Expectations Capping Gains

The British Pound is trading slightly lower on Monday, within striking distance of last week’s low against the U.S. Dollar. Weighing on the Sterling are rising expectations of another aggressive rate hike by the Federal Reserve at its next meeting on November 1-2, following Friday’s stronger-than-expected U.S. labor market report. Additionally, concerns about the budget plan continue to weaken U.K. assets.

At 04:20 GMT, the GBP/USD is trading 1.1081, down 0.0012 or -0.11%. On Friday, the Invesco CurrencyShares British Pound Sterling Trust ETF (FXB) settled at $106.46, down $0.71 or -0.66%.

The U.S. Dollar is picking up strength again after a setback early last week as hawkish Federal Reserve speakers and an unexpected drop in the U.S. unemployment rate last month is boosting expectations of another 75 basis point rate hike early next month.

Meanwhile, the Bank of England is expected to continue to take measures to stabilize the financial markets after U.K. minister Kwasi Kwarteng announced 45 billion pounds of tax cuts on September 23, triggering an abrupt sell-off on bond markets that forced the BoE to intervene.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.1494 will change the main trend to up. A move through 1.0349 will signal a resumption of the downtrend.

The minor trend is up. However, momentum is trending lower due to the confirmation of the closing price reversal top on October 5.

The main range is 1.2293 to 1.0349. Its retracement zone at 1.1321 to 1.1550 is resistance. This area stopped the rally at 1.1494 on October 5.

The short-term range is 1.0349 to 1.1494. Its retracement zone at 1.0922 to 1.0786 is the next downside target.

Daily Swing Chart Technical Forecast

Trader reaction to 1.1141 is likely to determine the direction of the GBP/USD on Monday.

Bearish Scenario

A sustained move under 1.1141 will indicate the presence of sellers. Taking out last week’s low at 1.1056 will indicate the selling pressure is getting stronger. This could trigger a break into the short-term retracement zone at 1.0922 to 1.0786.

Trader reaction to the retracement zone at 1.0922 to 1.0786 will determine the near-term direction of the Forex pair.

Bullish Scenario

A sustained move over 1.1141 will signal the presence of buyers. If this move creates enough upside momentum then look for a strong counter-trend rally into the major 50% level at 1.1321. This is the last potential resistance before the 1.1494 main top.