GBP/USD Price Forecast: Bears Target Pound Support at $1.2150

It was a busier morning on the UK economic calendar. For the Pound, inflation figures for May were in focus. With BoE Chief Economist Huw Pill warning of the need for more aggressive rate hikes, sensitivity to the numbers was likely.

In May, the UK annual rate of inflation ticked up from 9.0% to 9.1%, in line with forecasts.

According to the Office for National Statistics,

• Rising food and non-alcoholic beverages, compared with declines one year ago, had the largest contributions to CPI 12-month inflation rates.
• While food and non-alcoholic beverages contributed 22 percentage points, clothing and footwear had a downward contribution of 0.11 percentage points, with recreation and culture a downward contribution of 0.13 percentage points.
• On a monthly basis, consumer prices increased by 0.7% versus a forecasted 0.6%. Consumer prices had risen by 2.5% in April.

Later this morning, Bank of England Monetary Policy Committee member Joe Cunliffe could move the dial. The markets will be looking for any views on the latest inflation numbers and possible effects on interest rates.

GBP/USD Price Action

At the time of writing, the Pound was down by 0.64% to $1.21973.

A bearish start to the day saw the Pound fall to a morning low of $1.21922.

The Pound fell through the First Major Support at $1.2235 to test support at the Second Major Support Level at $1.2195.

Inflation figures failed to fuel a Pound rally, with risk aversion weighing.

Technical Indicators

The Pound will need to move through the First Major Support Level and the $1.2280 pivot to target the First Major Resistance Level at $1.2320.

A pickup in market risk appetite would support a return to $1.23.

An extended rally would test the Second Major Resistance Level at $1.2364 and resistance at $1.24. The Third Major Resistance Level at $1.2449.

Failure to move through the First Major Support Level and the pivot would leave the Second Major Support Level at $1.2195 into play.

Barring an extended sell-off throughout the day, the Pound should avoid sub-$1.2150. The Third Major Support Level sits at $1.2111.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal.

At the time of writing, the Pound sat below the 50-day EMA, currently at $1.22712. The 50-day EMA eased back from the 100-day EMA. The 100-day EMA fell back from the 200-day EMA: Pound negative.

A move back through to $1.23 would support a run at the 100-day EMA, currently at $1.23376, to bring $1.24 into play.

Up Next

Later today, Fed Chair Powell testimony on Capitol Hill will be the key driver of the day.

FX Empire Senior Editorial Team Member James Hyerczyk had this to say,

“Powell said last week that restoring price stability is “unconditional”.  We already know where the Fed stands, but the market isn’t sure if Powell has the support of both Democrats and Republicans so Wednesday’s testimony may turn political.

He may get hammered by both sides as to how he is going to achieve price stability (ie lower inflation) without disrupting labor market growth or causing a recession.”

James added,

“He may even be asked directly what the chances are for a recession. I think comments on labor market growth and the odds of a recession will grab the headlines. I don’t think reiterating that the Fed will raise rates aggressively will move the market much.

Powell also has a dual mandate:  2% inflation and 5% unemployment. He’s going to be asked how he can pull that off without causing economic damage.  If he says the Fed is willing to accept some economic damage, they are probably going to ask him where, what sector of the economy, and how much.“

James concluded,

“I’m leaning toward a round of intense questioning. If they ask him softball questions then I think the market will be disappointed.”