Pound Sterling Fails To Rebound

Pound Sterling Fails To Rebound

The pound sterling was extending weakness during the European session yesterday. In the American pre-market, GBP seemed ready to rebound. However, it did not happen. Instead, the British currency came to a standstill. It is still trading flat against the US dollar. The sterling was unable to recover due to the first estimate of the US Q4 GDP.

The US economic growth was beyond all expectations. According to the preliminary data, the US economy expanded by 5.7% y/y in the final quarter of 2021. Previously, the national economic output sank by 3.4% in 2020.

Thus, the US economy has not only got back on track in the wake of the COVID-driven crisis but surpassed the GDP of 2019. This came as a pleasant surprise to market participants. It would be logical to expect a further advance of the US dollar in light of such upbeat data.

Nevertheless, the market was trading sideways. The thing is that the US dollar is highly overbought. In other words, the robust GDP data just delayed a local correction for GBP/USD. Today, the economic calendar is empty. Hence, GBP/USD could rebound today.

The sterling has lost 2.7% against the US dollar over two weeks. Though this is a sharp price change, there is more space for GBP weakness compared to EUR. Yesterday, GBP/USD passed the support level at 1.3400. It means that traders are interested in opening short positions. GBP has to climb 180 pips to regain the bullish momentum.

The RSI technical instrument has entered the oversold zone on the 4-hour chart, having declined to 22.37. This signals the scenario of a technical retracement of GBP/USD to have to revise our trading plan.

According to the Alligator indicator, moving averages are interlaced on the daily chart. It indicates selling pressure in the market, this confirming the signal generated on the 4-hour chart.

Outlook And Trading Tips

Under such market conditions, a technical upward retracement will retain the sellers for a while from pushing the sterling down. The bearish cycle is underway both technical and fundamental factors confirm that. So, if the price settles below 1.3450, the odds are that the currency pair will extend its bearish cycle towards the lows of December 2021.

Complex indicator analysis signals intraday buying for the short term because of a technical upward retracement. At the same time, indicators suggest selling for the medium term because the selling interest will revive once the correction is over.

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