It appears that GBP/USD has started this week on a bearish note as it slipped below 1.2300 after an initial rebound. And experts believe that the chances of some reasonable traction in GBP/USD are also very difficult unless the market sentiment improves.
For the most part, investors are worried about the increase in crude oil prices. This will fuel the already high inflation to the upside and will further dampen consumer demand.
Earlier, the OPEC+ producers agreed to introduce output cuts on their crude oil production by around 1 million bpd. This caused the Brent as well as the WTI to jump higher and renewed the fears of very high inflation.
If we see a market situation that promotes safe-haven flows, it would add strength to the USD. This means more trouble for the GBP/USD pair, which is already struggling in the current situation.
As of writing, the Dow Futures was trading 0.3% higher, while the S&P 500 Futures was down by 0.15% for the day.
But the biggest news of all is the CME Group FedWatch Tool which now shows a 60% probability of the Fed's rate hike. If this turns out to be true, another 25 bps will be added to the interest rate.
Looking ahead, we also have the ISM manufacturing PMI survey, which will give an outlook on input inflation. If inflation increases, according to the PMI survey, it will also add strength to the USD.
The Priced Paid Index data is also expected to increase to 53.8 from an earlier value of 51.3. And if we look at the PMI, the market's expectation is 47.5 but a value above 50 will improve the risk sentiment.
So if the 1.2300 level is confirmed as resistance in the GBP/USD pair, the next stop will be the 1.2260 support level. After that, the next support levels for the GBP/USD will be 1.2230 followed by 1.2200.
On the other hand, 1.2350 is the nearest resistance and then there's the 1.2400 level. If GBP/USD crosses above 1.24 resistance, the next stop will be 1.2420.