GBP/USD Pierces Through Psychological 1.2000 Level. Further Downside Ahead？

GBP/USD PRICE, CHARTS and ANALYSIS:

GBP/USD FUNDAMENTAL BACKDROP

Cable gained some ground in the Asian session before the London open saw it pierce through the psychological 1.2000 handle. Fridays US jobs report continues to provide the dollar index with support and in turn capping any attempt at a recovery for GBPUSD. Market participants are pricing in a higher Fed Funds peak rate for 2023, in contrast to the Bank of England (BoE) with Governor Bailey stating that inflation in the UK is expected to continue its descent. This has given markets belief that the BoE may be closer to a pause in rate hikes than the Fed. Of course, it is early to be making such bold predictions, but should it play out as such, GBPUSD is facing further downside.

This morning we did have slightly positive news for the UK housing market as prices stabilize after a 4-month fall according to data from Halifax. House price growth YoY slowed to 1.9%, its weakest increase in 3 years. Given the rising rates demand is unlikely to recover anytime soon with the BoE revealing last week that mortgage approvals are now at their lowest since the 2008-09 financial crisis.

Later today we have speeches from both the BoE‘s Jon Cunliffe and Fed Chair Jerome Powell who will be speaking at the Economic Club in Washington DC. Markets are expecting a hawkish tone from the Fed Chair to back up last week’s jobs report which could add further support to an already buoyant greenback.

TECHNICAL OUTLOOK

The technicals paint an interesting picture at present with GBPUSD on course for a fourth consecutive day of losses. The pair has now declined over 450 pips since printing a double top pattern on January 23. We are approaching the 200-day MA around the 1.1950 area which could provide some support, while the RSI is in overbought territory. Should GBPUSD find support at the 200-day MA we could be in for a retracement before continuing lower to a potential test of the 100-day MA at the 1.1800 handle.

IG CLIENT SENTIMENT DATA: BEARISH

IGCS shows retail traders are currently LONG on GBP/USD, with 61% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment, and the fact that traders are long suggests that GBP/USD may continue to fall.