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  • Investors are worried about the economic effects of new COVID-19 restrictions in China.
  • There is little hope for an early relaxation of China’s COVID-19 restrictions.
  • Markets are placing an 80% probability of a 50bps Fed hike in December.

Today’s GBP/USD outlook is bearish. Sterling fell on Monday as investors worried about the economic effects of new COVID-19 restrictions in China. Treasuries and the dollar benefited as a result of risk aversion. Hopes for an early relaxation of stringent pandemic restrictions have been dashed by the sudden outbreaks that have swept the nation.

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Raphael Bostic, president of the Atlanta Federal Reserve, stated on Saturday that he was prepared to scale back to a half-point increase in rates in December. Still, he emphasized that rates will likely stay elevated longer than markets anticipated.

According to futures, there is an 80% possibility that rates will increase by 50 basis points to 4.25–4.5% and peak at 5.0–5.25%.

“We are comfortable that the deceleration underway in US inflation and European growth produces a moderation in the pace of tightening starting next month,” said Bruce Kasman, head of research at JPMorgan.

“But for central banks to pause, they also need clear evidence that labor markets are easing,” he added. “The latest reports in the US, euro area, and UK point to only a limited moderation in labor demand, while news on wages points to sustained pressures.”

This could see the return of the dollar bull rally and a decline in the pound.

GBP/USD key events today

There won’t be any significant news releases from the US or the UK today, so the market will likely consolidate.

GBP/USD technical outlook: Bears active below the 30-SMA

GBP/USD outlook

Looking at the 4-hour chart, we see the price trading slightly below the 30-SMA and the RSI close to 50, showing the price is in an area of indecision or equal strength. The price has been in a bullish trend respecting the 30-SMA as support. However, bulls were unable to break above the 1.2007 resistance level.

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Since then, the price has made a lower higher, and bears look set to push the price far below the 30-SMA. The trend will only reverse to bearish if the price can break below the 1.1755 support to make a lower low.

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