GBPUSD: Bulls need validation from 1.3450 immediate hurdle
From a technical perspective, the pair last week showed some resilience below the 61.8% Fibonacci retracement level of 1.3161-1.3749 move up and the subsequent strength favours bullish traders. That said, it will be prudent to wait for a sustained strength back above the 50% Fibo. level, around the 1.3450 region, before positioning for any further gains. The pair could then accelerate the momentum towards reclaiming the key 1.3500 psychological mark en-route the 1.3520 confluence.
On the flip side, the 1.3400 round-figure mark, closely followed by the 1.3380 region should protect the immediate downside ahead of last week's swing low, around the 1.3355 area. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag the pair towards the next relevant support near the 1.3320 region en-route the 1.3300 mark. Failure to defend the mentioned levels would make the pair vulnerable and pave the way for a slide towards the 1.
It is worth recalling that the Fed indicated that it could raise interest rates at a faster pace than anticipated to contain surging inflation. The markets seem convinced about the prospects for an eventual liftoff in March and have been pricing in the possibility of five quarter-point rate hikes by the end of 2022. Moreover, short-term interest rate futures imply a risk that the first hike could be 50 basis points.
On the other hand, expectations that the Bank of England will hike interest rates at its meeting on Thursday underpinned the British pound. This was seen as another factor that pushed the pair higher for the second successive day. Heading into the key central bank event risk, the recent UK political drama might hold back traders from placing aggressive bullish bets around the pair and cap the upside.
Hence, it will be prudent to wait for a strong follow-through buying before confirming that the recent rejection slide from the very important 200-day SMA has run its course. There isn't any major market-moving economic data due for release from the UK, leaving the pair at the mercy of the USD price dynamics. Later during the early North American session, market participants will look forward to the release of the Chicago PMI from the US.
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