GBP, DXY PRICE, CHARTS AND ANALYSIS:

• GBP/USD Appears Vulnerable to Further Downside Following Trendline Rejection.
• Fundamentals and Geopolitics Give the USD the Upper Hand, Keeping it Supported.
• The Possibility of Rangebound Trade Ahead of the FOMC and Central Bank Meetings Remains a Possibility.

GBPUSD enjoyed a mixed day with some consolidation in the European session as the DXY started the day on the back foot. The US session however, has seen a rise in US Yields which has underpinned the US Dollar and reignited the bullish rally in the Dollar Index. The Question is how high can the Dollar Index (DXY) Go?

DOLLAR INDEX (DXY) AND US Q3 GDP

As mentioned earlier this week the DXY is unlikely to come under sustained selling pressure at the moment given the trajectory of US Yields and ongoing Geopolitical tensions. This support means that any dips at present are likely to present short term USD buying opportunities as risk sentiment continues to shift between risk-on and risk-off.

Looking at the technical at play in the DXY and yesterday's bullish engulfing candle close and todays bullish US session there are signs of a return to the key 106.80-107.20 resistance area. I do think the DXY will struggle at resistance here and is in need of a catalyst if we are to break higher. US Q3 GDP lies ahead tomorrow and even a print above expectation may not be enough for sustained break above resistance. Expectations are for the US economy to show growth of 4.3% for the quarter, well above the 2.1% in Q2. As we approach next week’s Federal Reserve, and the overall market mood I expect market participants to remain cautious.

For all market-moving economic releases and events, see the DailyFX Calendar

Dollar Index (DXY) Daily Chart

Source: TradingView, Chart Created by Zain Vawda

GBP FUNDAMENTALS

Cable has failed to find support in UK data this week and the potential for further weakness remains a possibility. Data this week has showed labor data remained quite positive but comments from the BoE Governor and policymakers suggest the Bank of England are done with rate hikes in 2023. This assumption seems to be a drag on GBP at present leaving GBPUSD vulnerable to a break of the 1.2000 psychological level.

TECHNICAL OUTLOOK AND FINAL THOUGHTS

GBPUSD is back at recent lows and a key support area which if broken could push Cable toward the 1.2000 psychological mark. A break of 1.2000 could leave GBPUSD in freefall particularly if the Fundamentals line up as well.

Cable saw a trendline rejection yesterday and a marubozu candle close which hinted at further downside today. However, some early USD weakness in the European session kept the slide at bay until the latter part of the US session. A daily candle close below the 1.2080 handle could however prove elusive as Central Bank meetings come into focus and could see GBPUSD rangebound between the 1.2080 and 1,2280 handles.

Alternatively, we must bear in mind the US dollar and is safe haven appeal which could increase on Geopolitical concerns and that could also leave cable vulnerable for an accelerated mood to the downside with no other data for the British Pound to rely on for the rest of the week (not that it helped much this week anyway).

Key Levels to Keep an Eye On:

Support levels:

• 1.2080
• 1.2030
• 1.2000 (Psychological Level)
• 1.1850

Resistance levels:

• 1.2182
• 1.2312
• 1.2399

GBP/USD Daily Chart, October 25, 2023

Source: TradingView, Chart by Zain Vawda

https://www.dailyfx.com/news/gbp-usd-at-risk-of-freefall-if-1-2000-psychological-level-is-broken-20231025.html