GBP/USD Confined In A Narrow Range Amid Lack Of Risk Catalyst, FOMC Minutes Awaited

• GBP/USD cross attracts some selling on Tuesday and shifts lower but still remains confined in a narrow range 
• Expectations that the Federal Reserve will stick to aggressive interest rates offer support to the safe-haven greenback 
• The divergent Monetary policy outlook by the BOE and the FED acts as a headwind to the Cable amid looming recession risks.
• Markets await the release of this month’s FOMC Meeting minutes due for release on Wednesday for a fresh directional impetus

GBP/USD Pair has been oscillating in a narrow range of 1.20145 - 1.20222 levels since late last week as cautious investors await the FOMC Meeting Minutes due for release on Wednesday. That said the cross attracted some selling on Tuesday during the mid-Asian session after attracting bearish bets to extend the modest decline further below the previous day's close. At the time of speaking the pair is up 11 pips for the day and looks set to maintain its bid tone heading into the European session.

The British Pound’s recent performance has been lackluster amid expectations that the Bank of England (BOE) monetary policy will ease further its monetary policy tightening and in turn, this has been acting as a headwind towards the Cable. In fact, softer-than-expected UK Inflation figures released last week further supported bets of further policy easing and in some way eased off pressure on the UK Central Bank in delivering aggressive rate hikes going forward.

The Cable was further pressured by a stronger dollar across the board which is heavily supported by a strong run of economic data out of the United States last week that traders bet will keep the Federal Reserve on its monetary policy tightening path for longer than initially expected. A slew of data from the world's largest economy in recent weeks pointed to a still-tight labor market, sticky inflation, robust retail sales growth, and higher monthly producer prices have raised market expectations that the U.S. central bank will stick to aggressive interest rate hikes to tame inflation in the U.S. The bets were further reaffirmed by hawkish comments by top Federal Reserve officials who backed further rate hikes in the upcoming monetary policy meetings. This in turn widened the monetary policy outlook lately adopted by the BOE and the FED and was seen as a key factor that triggered the treasury bond yields to rise higher and offered some support to the greenback. The markets are now pricing that the Fed will raise rates by a quarter of a percentage point at each of its meetings in March and May.

Furthermore, the prevalent cautious mood seemed to have tempered investors from riskier assets. This was evident from a generally weaker tone around the equity markets, which could drive some haven flows toward the GBP/USD pair. Additionally, fears of a looming recession seem also to benefit the greenback. That said, traders also seem reluctant to place aggressive bets and prefer to wait on the sidelines ahead of the FOMC meeting minutes due for release on Wednesday.

As we advance investors now look forward to the US and the UK docket featuring the release of the Manufacturing, Composite, and Service PMI by Markit and the Chartered Institute of Procurement & Supply (CIPS). The main attention, however, remains on tomorrow's key catalyst (FOMC Meeting Minutes) which if the markets perceive a hawkish tilt from the minutes will be seen as a fresh trigger for the USD bears to push down the price further.

Technical Outlook: Four-Hour GBP/USD Price Chart

From a technical perspective, the price has been confined to a narrow range of 1.20145 - 1.20222 levels. Subsequent weakness below the lower limit of the aforementioned range, will mark a fresh breakdown and pave the way for a further downside move. The pair might then accelerate the fall toward the 1.19626 support level last touched on 7the February before eventually dropping towards the 1.19000 psychological mark. If sellers manage to breach this floor, the pair could turn more vulnerable and accelerate the bearish trajectory toward the demand zone ranging from 1.18555 - 1.18292 levels before eventually dropping to the 1.1800 round figure.

All the technical oscillators are holding in negative territory, with the RSI (14) at 46.95 below the signal line portraying a bearish filter. On the other hand, the Moving Average Convergence Divergence (MACD) Crossover is also below the signal line, pointing to a bearish sign for price action this week. Acceptance of price below the 200 Exponential Moving Average (EMA) at 1.21393 level adds credence to the bearish bias.

On the flip side, if buyers resurface and spark a bullish turnaround, initial resistance comes in at the 1.20222 level. If buyers pierce this barrier, buying interest could gain momentum and the focus would shift higher toward the 61.8% and 50% fib levels at 1.21338 and 1.20910 levels respectively. Sustained strength above these levels would be met by stiff resistance at the 200 Exponential Moving Average (EMA) at 1.21393 level of which if buyers manage to break above this strong technical level convincingly it would negate any near-term bearish outlook and pave the way for aggressive technical buying around the GBP/USD pair.