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Title: GBP/USD flirts with further breakdown, continuation of downside leg

May 04, 2022 03:37AM ET

By: AnalysisWatch

Last week's low was 1.2411, but the pair managed to hold a weekly close above 1.2500. The dollar has been very strong lately and is holding up well ahead of today's FOMC meeting. This is the first major risk event to watch for the pair this week, followed by tomorrow's BOE meeting.

At the moment, sellers are flirting with the technicals again and pushing just below 1.2500. The trading range is relatively narrow today, but there is no denying that sellers are ready to resume the downtrend after the break below 1.3000 last month.

If the Fed sticks to its course and adopts a more hawkish undertone at the June and July meetings, this could be enough to cause the dollar to rise further.

In that case, there is a risk of another drop, possibly towards 1.2000 (even if conditions are overbought), unless the BOE makes a big showing tomorrow (though that is unlikely).

The bond market will be the place to watch for another dollar rally. If 10-year government bond yields make a firm break above 3%, it will be a strong trigger for a broader move in the greenback.

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