GBP/USD Price Analysis: Eyes more losses below 1.2400 as chances of neutral Fed policy entirely fade out

• GBP/USD is expected to display more losses below 1.2400 amid hawkish Fed bets.
• The Fed is not ready to tone down the need for more rate hikes despite a significant fall in inflation.
• The Pound Sterling bulls are at a make or a break level near the edge of the upward-sloping trendline from 1.2191.

The GBP/USD pair has found an intermediate cushion after dropping to near the round-level support of 1.2400 in the early Tokyo session. The Cable is expected to extend its recovery as chances of more rates from the Federal Reserve (Fed) are extremely firm. The absence of recovery signs from the Pound Sterling after a nose dive move cements more downside ahead.

The US Dollar Index (DXY) rebounded sharply after printing a fresh one-year low of 100.78 as the Fed is not ready to tone down the need for more rate hikes despite a significant fall in inflation and related economic indicators and the loosening of labor market conditions. Fed funds rates are displaying more than a 98% probability of a consecutive 25 basis point (bp) rate hike.  United States monthly Retail Sales data released on Friday showed a contraction of 1.0% while the street was anticipating a contraction of 0.4%.

Analysts at CIBC conveyed “The Fed is looking for definitive signs of a cooling in activity and this print is a step in the right direction, but with sales volumes in the control group still 5.8% above their pre-pandemic trend level, this won't prevent a 25bp hike at the May FOMC."

GBP/USD witnessed a steep fall after forming a Double Top chart pattern on a two-hour scale. The Cable failed to surpass it's prior higher after sensing the presence of responsive sellers at elevated levels. The Pound Sterling bulls are at a make or a break level near the edge of the upward-sloping trendline plotted from March 24 low at 1.2191.

The 20-and 50-period Exponential Moving Averages (EMAs) are on the verge of delivering a bear cross at around 1.2410.

Meanwhile, the Relative Strength Index (RSI) (14) has slipped into the bearish range of 20.00-40.00, indicating more weakness ahead.

A slippage below April 14 low around 1.2400 will expose the asset to April 10 low at 1.2345 followed by March 30 low at 1.2294.

On the flip side, a recovery move above April 13 high at 1.2537 will drive the asset towards a fresh 10-month high at 1.2597, which is 08 June 2022 high. A breach of the latter will expose the asset to May 27 high at 1.2667.

GBP/USD two-hour chart