The Fed has eventually paused its tightening cycle at 5.00-5.25% because it wants to see more economic data before deciding on another hike as they are trying to find the right level of restraint to bring inflation down without too much economic pain.
The BoE, on the other hand, is on track to keep raising interest rates given the recent hot inflation and employment reports. Given the Fed’s pause and the weaker data, this created a policy divergence between the Fed and the BoE, ultimately favouring the British Pound.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD broke above the 1.2680 high and extended the rally into the 1.2850 level. This quick and strong rally though made the price to overstretch as depicted by the distance from the blue 8 moving average. Generally, we can see the price consolidating or pulling back into the moving average before the next move. A good level of support for the buyers would be the 1.2680 high.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that at the moment the price is finding some support at the red 21 moving average, but from a risk management perspective, the buyers would be better off if they waited for the price to pull back into the 1.2680 support where we can also find the 38.2% or 50% Fibonacci retracement levels, the trendline and the daily 8 moving average for confluence. This way they would have a strong support zone and a better risk to reward setup.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is bouncing on a previous swing low level at 1.2767 and if we draw a counter trendline we can see that we may have a descending triangle pattern. The price can break on either side of the pattern, but it gives some structure for the next move.
A break to the upside should lead to another rally possibly into the 1.30 handle. A break to the downside, on the other hand, should give us the pullback into the trendline. At the moment, it’s a buyers’ market so the sellers can either ride the likely fall from the 1.2767 support into the trendline or wait for the price to break the 1.2680 support and the major trendline to target the 1.25 handle.
This week we will see the UK CPI report tomorrow and the Fed Chair Powell’s Testimony later. On Thursday we will have the BoE policy decision where the central bank is expected to hike by 25 bps and the US Jobless Claims. Finally, on Friday we will see the US PMIs.
See also the video below: