Fundamental Overview
The USD weakened across the board recently due to a more dovish than expected FOMC decision last week where the Fed decided to signal a bigger QT taper beginning in June and the Fed Chair Powell pushing back repeatedly against rate hike expectations. Moreover, the data on Friday showed that the Fed might indeed just keep rates higher for longer as job and wage growth soften. The greenback has been erasing some of the losses this week, but overall we have mostly a rangebound price action in FX as we wait for the US CPI report next week.
The GBP, on the other hand, has been gaining ground mostly because of the weaker USD and the risk-on sentiment. Tomorrow, we have the BOE rate decision where the central bank is expected to keep interest rates unchanged at 5.25%. The latest inflation report showed the headline and core figures moderating further while the labour market data showed an increase in the unemployment rate and job losses with high wage growth figures. At the last meeting, the vote split changed with the most hawkish members joining the hold camp and Dhingra remaining the usual dissenter voting for a cut. The market expects the first rate cut in September and it’s unlikely that we will see the BOE making major changes at the upcoming decision.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD spiked above the trendline following the US NFP release but eventually got rejected from the 1.26 handle and faded all the gains leaving behind a possible fakeout. This is generally a reversal pattern, although it would be better to pair it with a catalyst. Right now, we are in kind of a limbo where the market has priced out the aggressive rate cuts and remains pretty stable around the current pricing. The pair seems now mostly driven by risk sentiment.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that from a risk management perspective, the sellers would have a better risk to reward setup around the previous support now turned resistance around the 1.2530 level. In fact, if the price were to break above the resistance and the trendline, the bearish setup would be technically invalidated and the buyers will likely pile in with more conviction to position for a rally into new highs.
Upcoming Catalysts
Tomorrow we have the BOE policy decision and the US Jobless Claims figures. On Friday, we get the University of Michigan Consumer Sentiment survey. It’s unlikely that we will see major changes to the market’s expectations, so the price action might remain tentative heading into the US CPI next week.
