GBP/USD Technical Analysis: Rapid Evaporation of Gains – 02 March 2023
Any attempt by the GBP/USD pair to recover upwards would be subject to a quick sale this week. The bulls tried to rebound to the upside, with gains that reached the 1.2143 level, after announcing that an important and vital agreement had been reached between Britain and Ireland. The currency pair quickly fell towards the support level of 1.1965, before settling around the level of 1.2020 at the time of writing the analysis.
Improved sentiment has seen the pound recover from its lowest levels since September and end February with gains against the euro, and March could see further gains according to some analysts. The GBP/EUR exchange rate approached the key support level of 1.11 following the Bank of England decision on February 02 but returned to 1.14 at the beginning of March, amid improving local data and the agreement between the EU and Britain on the Northern Ireland Protocol.
The deal indicates the potential for improved relations between the two sides which could unlock progress in other areas of greater importance to the wider UK economy. For his part, says Kit Juckes, head of forex research at Societe Generale, “For the British pound, everything now depends on DUP supporting the Windsor framework. Some negotiation may be required, but if support is close, we may see EUR/GBP fall below 0.86.”
The GBP/EUR pair advanced 0.70% in February, a gain that comes despite the pair trading at its lowest point since September 2022 at the start of the month.
The main event this month is the March 15 budget, when Chancellor Jeremy Hunt is expected to announce a better-than-expected fiscal position due to the continued decline in UK wholesale gas prices and strong tax revenues. The more optimistic tone of Hunt’s budget would add to the improvement in UK business and household sentiment reported in the February PMI report from S&P Global.
Overall, the pound jumped against the euro, dollar and other currencies after the UK’s composite PMI rose to 53 in February, beating expectations of a reading of 49 and indicating a return to growth for the economy. This represents a significant uptick in activity in January 48.5. More importantly, surveys also indicated improved sentiment among businesses for the coming months.
Sentiment may be further boosted by signs that the “high point” in relations between Britain and the European Union has passed after the signing on February 27 of the Windsor Framework, an agreement aimed at settling problems in the Northern Ireland protocol.
But what is at stake goes beyond just Northern Ireland as the rift over protocol has long hampered UK-EU relations in broader and more economically important areas, such as financial services and research and development. Before the deal was signed, the EU took the UK to court for non-compliance with the Northern Ireland Protocol, and at the same time the UK introduced legislation allowing it to unilaterally bypass some parts of the protocol.
This raised the possibility of a tit-for-tat trade war, something analysts say would have crippled British assets in recent months, including the British pound.
There is no change in my technical view of the performance of the price of the GBP/USD.The general trend of the currency pair will remain bearish as long as it is near and below the psychological support level 1.2000.Stability below it will push the bears to move further downwards.The support levels 1.1965 and 1.1880 will be the most important targets for its control.The technical indicators will move towards oversold levels.
On the other hand, and according to the performance on the daily chart, any attempts to rebound to the upside may collide with the resistance levels at 1.2175 and 1.2280, respectively. Until now, I still prefer selling the currency pair from every rising level. The economic calendar skips important British releases and from the US the number of weekly jobless claims will be announced.
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