Fundamental Overview
The USD has been generally weaker this week after the strength seen last week due to some risk off sentiment. In fact, it looks like it’s just sentiment that’s been driving the market recently as fundamentally the soft US inflation figures just consolidated the market’s expectation of two cuts for this year despite a bit more hawkish than expected FOMC decision.
The GBP, on the other hand, got pressured mainly because of the risk-off sentiment and the US Dollar strength. The mood in the market has been gradually improving this week and we saw the Pound gaining ground as a consequence.
Today, we have the BoE policy decision where the central bank is expected to keep the Bank Rate unchanged at 5.25%. As a reminder, the last meeting was a bit more dovish than expected with Ramsden joining Dhingra voting for a rate cut and Governor Bailey delivering some dovish comments like saying that they could cut more than the market expected.
It’s pretty evident that the central bank is eager to cut but nonetheless wants a bit more confidence before easing the policy rate. Yesterday's UK CPI was another step in the right direction (although services inflation remains very high) but it wasn't such a gamechanger in the bigger picture with the market pricing remaining pretty much the same at 44 bps of easing by year end (48 bps before the CPI release).
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD pulled back into the 1.27 handle this week and started to consolidate around it amid a gradual but cautious improvement in risk sentiment.
This is where we can expect the sellers to step in to position for a break below the 1.2634 level and target new lows. The buyers, on the other hand, will keep on buying the dips looking for a rally into the 1.29 handle as long as the price remains above the 1.2634 level.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have also the 38.2% Fibonacci retracement level of the entire rally since April standing around the 1.2634 level which should technically strengthen the support level. As long as the price stays above the 1.27 handle the buyers should remain in control as the price continues to print higher highs and higher lows.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more clearly the choppy price action around the 1.27 handle. From a risk management perspective, the sellers will have a much better risk to reward setup around the 1.28 handle, although it’s unlikely that we will see the price reaching that level unless the BoE surprises with a hawkish decision.
The buyers, on the other hand, will have a better risk to reward setup around the 1.2634 level which has a higher chance of being reached in case the BoE surprises with a more dovish than expected decision. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the BoE Policy Decision followed by the US Housing Starts, Building Permits and the US Jobless Claims figures. Tomorrow, we conclude the week with the UK and the US PMIs.
