GBP/USD Daily Forecast
22 Jun 2022

GBP/USD Daily Forecast

GBP/USD finds support at the 61.8%, and much like the UK’s PM, survives political Monday

  • The pound has found buyers at a 61.8% ratio as the UK PMs survive a confidence vote.
  • For now, the PM is in office, but there are questions over his leadership on a poor outcome in the vote. 
  • A break of the 61.8% ratio could lead to a restest of the support structure ahead of a run below 1.2500 through to 1.2350.

GBP/USD : Technical Analysis

At 1.2530, GBP/USD is starting out resting at hourly support on the Fibonacci scale, coming in close to the 61.8% golden ratio. This is following a slide overnight as UK political tensions combined with US dollar strength digs into long spot positioning 

Sterling bulls moved in to support the currency around a confidence vote on Monday after a growing number of lawmakers in Boris Johnson’s Conservative Party questioned the British leader’s authority over the “partygate” scandal.

As Reuters reported, ”a majority of the 359 Conservative lawmakers – at least 180 – would have to vote against Johnson for him to be removed, a level some Conservatives have said might be difficult to reach given the lack of an obvious successor. A Reuters count showed at least 169 British lawmakers from Johnson’s Conservative Party had publicly indicated support for him ahead of the vote.”

The outcome left the PM at the helm but the vote proves that he has little support from within his own party which hangs like danger on a rope over his leadership.  Johnson won the support of 211 MPs but 41% of his party voted to get rid of him. It was the worst verdict on a sitting prime minister by their own party in recent times.

Meanwhile, the US dollar gained against a basket of major currencies on Monday as risk appetite waned from earlier levels. After touching a near 20-year high of 105.01 on May 13, the US dollar index (DXY) was pulling itself up in the bull’s commitment from around the 102 level. 

Friday’s strong Nonfarm Payrolls report helped the currency to recover as traders now count down to the Federal Reserve’s policy announcement on June 15, in which the central bank is widely expected to raise rates by 50 basis points. Ahead of that, investors will look to Friday’s reading on Consumer Price Index for signs of how long the Fed may continue its rate hike path.

The USD/JPY currency pair has traditionally had a close correlation with U.S. Treasuries. When interest rates head higher, Treasury bond prices go down, which lifts the U.S. dollar, strengthening USD/JPY prices.

A foreign exchange correlation is the connection between two currency pairs. There is a positive correlation when two pairs move in the same direction, a negative correlation when they move in opposite directions, and no correlation if the pairs move randomly with no detectable relationship.

EUR/USD
 
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The major currency pairs on the forex market are the EUR/USDUSD/JPYGBP/USD, and USD/CHF. The four major currency pairs are some of the most actively traded pairs in the world, along with the so-called commodity currency pairs: USD/CAD, AUD/USD, and NZD/USD.

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