GBP/USD closed the previous week virtually unchanged following a steady rebound in the second half of the week. The intense flight to safety at the beginning of the new week, however, caused the pair to open with a bearish gap and decline below 1.2200.
Latest reports note that the combined death toll surpassed 1,100 as Israel retaliated with airstrikes after Hamas fired rockets from the Gaza Strip and militants broke down the barriers and took hostages over the weekend. The US Dollar (USD) benefited from safe-haven flows and the USD Index climbed above 106.50 and was last seen rising 0.4% on the day, after losing nearly 1% in a three-day slide last week.
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies today. Pound Sterling was the weakest against the New Zealand Dollar.
US bond markets will be closed on Monday in observance of the Columbus Day holiday. US stock markets, however, will operate in normal hours and the action in Wall Street’s main indexes could drive the USD’s valuation. A bearish action in US stocks is likely to help the USD preserve its strength in the American session.
Meanwhile, Federal Reserve Governor Michelle Bowman said on Saturday that the US central bank will likely need to tighten monetary policy further and hold it at a restrictive level for some time to return inflation to 2% target.
The US economic docket will not feature any high-tier data releases and investors are likely to stay focused on risk perception.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart managed to hold above 50 despite the latest decline. On the upside, 1.2200 (psychological level, Fibonacci 23.6% retracement of the latest downtrend) aligns as key resistance. In case the pair stays below that level, 1.2150 (50-period Simple Moving Average) could be tested ahead of 1.2120 (upper limit of the broken descending regression channel) and 1.2100 (psychological level, static level).
If GBP/USD rises above 1.2200 and stabilizes there, 1.2230 (100-period Simple Moving Average) is likely to act as stiff resistance before 1.2250 (static level).