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Summary: The GBPUSD saw buying interest at the beginning of the new week, yet price action remains subdued. Nevertheless, from a medium-term perspective, the pound appears to be significantly oversold, so the downward momentum may still be limited above the 1.2000 level.

Fundamentals

Huw Pill, Chief Economist of the Bank of England, expressed concerns today at a forum, saying, "We probably have some work to do, to ensure that when we get back to 2% we do so in a way that is sustainable through time."

Huw Pill expressed worries about the recent decline in overall inflation. He noted that interest rate cuts alone are insufficient to achieve the inflation target.

He emphasized the need for a consistent strategy, stating, "If we have a persistent component of inflation, it seems natural to me that we have a persistent monetary response to it. It is important that we do not declare victory prematurely, just because movements which are relatively mechanical in headline inflation are working their way through."

Bank of England Governor Andrew Bailey, in a recent speech at the International Monetary Fund's Marrakech annual meeting, reviewed the decision to maintain interest rates at 5.25% last month. He described this decision as "a tight one" and added that "they’re going to go on being tight ones.”

The Bank of England's Monetary Policy Committee (MPC) suspended a series of consecutive rate hikes in September by a narrow margin of 5-4, highlighting internal divisions over the best course of action.

Andrew Bailey, in emphasizing the bank's recent efforts, said, "We have made, I think, particularly in the last few months, solid progress in terms of showing signs that inflation is being tackled."

However, he cautioned against overconfidence, adding, "But let’s not get carried away because there’s an awful lot still to do." He noted that the "last mile" of inflation management would largely depend on "restrictive policies."

The BoE unexpectedly paused its rate hike cycle in September and provided little indication of its intentions behind the pause. This caused a sharp drop in GBPUSD from the 1.2300 range recently.

Now, market expectations that the BoE will maintain the status quo in November have hindered new bullish bets on the asset. However, from a medium-term perspective, the pound appears to be significantly oversold, so the downward momentum may still slow down. Buying on dips may require cautious waiting for strong follow-up buying interest to materialize.

Technical Analysis

GBPUSD started the week with fresh buying interest and maintained intraday gains during the European session. The spot price is currently trading around the 1.2175-1.2180 range, up 0.30% on the day. However, the short-term downward momentum has not yet ended.

A significant break below 1.2107 could accelerate the decline. The next major support lies around the 1.2040 range, and a breach below this support could test 1.2020. Any further downside may push the asset below the 1.2000 level.

Nevertheless, due to the expected challenges on the path to an upward move, caution is necessary. A bullish advance above the 20-day SMA may pause around 1.2340, and then the 1.2400-1.2430 range may immediately hinder the bulls' path toward the 50-day SMA. A decisive break above the latter would boost the short-term outlook.

Overall, GBPUSD is facing issues with improving short-term deviations, requiring a stronger performance to achieve a bullish outlook. In terms of trading strategy, buying the dips is recommended.

Trading Recommendations

Trading Direction: Long

Entry Price: 1.2100

Target Price: 1.2501

Stop Loss: 1.2000

Valid Until: 2023-10-30 23:55:00

Support: 1.2105, 1.2081, 1.2037

Resistance: 1.2271, 1.2336, 1.2425