GBP/USD Faces Uphill Battle at 1.2550 Amid Rising Risk Aversion
06 Sep 2023
GBP/USD Declines to 1.2550 as Risk Aversion Increases.
In the fast-paced world of currency trading, the GBP/USD pair has been making headlines lately. As of now, it stands at the pivotal point of 1.2550, and here’s why.
1. The Impact of Risk Aversion
Wednesday’s European trading hours witnessed a surge in selling pressure on the GBP/USD pair. This has left it teetering around the 1.2550 mark. The primary culprit behind this tumultuous ride is none other than risk aversion, a phenomenon gripping the financial markets.
Investors and traders alike are increasingly concerned about global economic growth and the escalating costs of oil. These worries have sent shockwaves through the markets, causing investors to flock to safer assets, including the US Dollar.
2. The Resilient US Dollar
The US Dollar, in the face of these turbulent times, has managed to maintain its strength. This resilience has thwarted the GBP/USD’s attempts to mount a comeback.
Just before the close on Tuesday, the GBP/USD pair dipped below 1.2530, marking its lowest point since mid-June. On Wednesday, it did manage to find some stability around this level, but the overall sentiment in the market suggests that a sustained recovery could be an uphill battle.
3. The Role of US ISM PMI
All eyes are now on the US ISM PMI (Purchasing Managers’ Index) report. Any discernible change in risk sentiment during the afternoon session could have a significant impact on the GBP/USD pair. If the risk perception remains bearish, it could continue to dictate the pair’s movement.
In summary, the GBP/USD pair currently faces the challenge of navigating through a risk-averse market. The US Dollar’s resilience, combined with global economic concerns, is making it tough for the pair to regain its footing.
GBP/USD Technical Analysis – Daily Chart
Let’s take a closer look at the technical aspects of the GBP/USD pair.
- The pair is currently trading within an upward channel.
- It’s worth noting that GBP/USD is positioned below all Moving Averages (SMA).
- The Relative Strength Index (RSI) is firmly in the selling zone, indicating bearish sentiment.
- The Stochastic oscillator reinforces this negative trend.
Key Levels to Watch
- Immediate Resistance Level: 1.2625
- Immediate Support Level: 1.2543
How to Trade GBP/USD
Given the technical indicators and the prevailing market sentiment, it’s essential to consider potential trading strategies.
- Following a price increase, the GBP/USD exchange rate started trading lower, forming a distinct head and shoulders pattern.
- Currently, it’s trading at a crucial support zone. If this zone gives way, we may see further downward movement.
- GBP/USD is signaling a “Sell” based on technical analysis.
- Entry Point: 1.2514
- Take Profit: 1.2432
- Stop Loss: 1.2575
In conclusion, the GBP/USD pair is facing headwinds due to risk aversion and the strength of the US Dollar. Traders should exercise caution and consider the technical signals when making trading decisions.