- GBP/USD remains a ‘sell the bounce’ trade after hitting 22-month lows.
- Risk-aversion, BOE’s recession projection to keep any GBP rebound limited.
- Bear flag confirmation on the 4-hour chart points to more pain for cable.
GBP/USD is seeing a dead cat bounce above 1.2300, reversing quickly from fresh 22-month lows reached at 1.2276 in the last hour.
The US dollar remains in charge and advanced to the highest levels since December 2002 when compared to its majors, adding to the renewed weakness in the cable.
The sentiment around the GBP remains undermined after the BOE projected a recession for the UK economy in Q4 2022 while hiking the key rate by 25 bps to 1% on Super Thursday.
On the other hand, despite a contraction in the US Q1 GDP, Fed Chair Jerome Powell remains confident on the economy and labor market, suggesting 50 bps rate hikes in the next two policy meetings.
The Fed-BOE divergence on the monetary policy, as well as, the economic outlook will likely keep GBP/USD’s bearish potential intact. The focus now shifts towards the US NFP data and speeches from the Fed and BOE policymakers for fresh trading incentives on the spot.
Looking at the daily chart, Thursday’s sell-off that followed the Asian consolidation carved out a bear flag formation on the four-hour chart.
The major breached the rising trendline support at 1.2340 on a 4-hour candlestick closing basis, validating the bear flag.
The further downside, therefore, opened up and the price went on to refresh 22-month lows below 1.2300.
At the time of writing, the spot is attempting a minor comeback, although the bear flag support now resistance at 1.2340 is acting as a powerful upside barrier.
The recovery momentum will gather steam only on a sustained move above the latter, with eyes on the pattern resistance at 1.2388.
If bulls reclaim that level, then it will lead to the pattern failure, unleashing the additional recovery towards the 1.2450 psychological barrier.
Should the selling momentum resume, then bears will test the 22-month lows once again, opening floors towards 1.2250.