GBPUSD Cautious reaction after central banks

The U.S. dollar had a topsy turvy end of the week following the

adoption by the Bank of England and the European Central Bank of

slightly more restrictive positions than the markets had expected, which

gave a boost to the pound sterling and the euro. Similarly, last night

the Bank of Japan announced the end of its accommodative policy to

eventually return to the one that prevailed before the pandemic. These

changes were expected by the markets, but they reduce the difference in

policy between the Fed and other central banks.

The

British pound edged higher after climbing as high as $1.3375 for the

first time since November 24, as the BoE surprised most market

participants by becoming the first major central bank to raise interest

rates since the pandemic began. The BOE raised rates by 0.15 basis

points to 0.25% (ignoring the rise in the omicron variant).

The

euro remained roughly stable after hitting its highest level this month

at USD 1.1360 after the ECB outlined plans to remove monetary stimulus

in the coming quarters, though it also emphasized policy flexibility.

A

cautious ECB pullback and a surprise BoE hike resulted in selloffs

before year-end, especially given the long and unbalanced positioning on

the dollar.

However, the weakness in the dollar index

is not expected to extend, with the Fed ahead of the ECB in terms of the

tightening cycle, and dips to the 95.50 level on the index are a buying

opportunity. The start of the year could see buying positions in the

greenback accumulate.

On Wednesday, the Fed said it

would accelerate the tapering of its bond-buying program to end in

March, which would result in three quarter-point rate hikes next year.

The dollar index initially hit a three-week high before beginning a

decline.

The different paths taken by the major central

banks underscore the deep uncertainties about how the rapidly spreading

omicron variant will affect economies and what each of them needs to do

to combat runaway inflation, which is hitting the U.S. and Britain

hard, but Europe less so for now.

From a technical

perspective, the GBPUSD traded mixed in the end of the week along the

polarity line that acts as resistance at 1.3370. The high wick that

appeared at its contact indicates the presence of sellers. This level is

now key in the short term for the evolution of the cable.

The

GBPUSD is in a downtrend and the rebound of the last 3 sessions is only

a correction. The risk is therefore to see a failure on the resistance

and a negative recovery towards the December 2020 low at 1.3140, a level

which should be targeted in the near term.

(Chart Source: Tradingview 19.12.2021)

The crossing of 1.3370 would allow considering a more pronounced rebound towards 1.3607.

Support & Resistance Levels:

R3      1.3830

R2      1.3607

R1      1.3370

S1      1.3140

S2      1.3000

S3      1.2850

Disclaimer:

This material has been created for information purposes only. All views

expressed in this document are my own and do not necessarily represent

the opinions of any entity.