The US economic data keeps on showing a resilient economy and as a consequence the higher for longer stance becomes more and more certain which is making Treasury yields to rally. This has been supporting the USD as we’ve been seeing a divergence in the data with the other major economies. The recent Retail Sales data showed also that consumer spending remains strong and it might either lead to more inflation or keep inflation high for longer.
On the other hand, the BoE hiked by 25 bps as expected as the UK CPI missed expectations across the board and UK employment report showed a mixed picture with both the unemployment rate and wage growth higher. The central bank seems to be leaning more on the less hawkish side as a key line in the statement was tweaked to indicate the propensity for a “higher for longer” stance rather than keeping with additional rate hikes. This week we got the employment report showing even more wage growth despite the unemployment rate ticking higher again and the UK CPI beat expectations pointing to a stagflation. The BoE will hike by another 25 bps in September but things are looking ugly for the UK.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that we have a strong support zone around the 1.2593 level where we have also the 38.2% Fibonacci retracement level. In fact, we can see that the price has bounced twice from there which might end up being a double bottom. The moving averages are crossed to the downside and the bias remains bearish as the price continues to print lower highs. If the support gives way, we are likely to see a fall into the 1.2310 swing low level.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a strong downward trendline that’s been acting as a reliable resistance for the sellers. In fact, we can see that after the initial spike after the UK CPI data, the sellers piled in again and the price fell to the levels seen before the CPI release. The buyers will want to see the price breaking above the trendline to have even more conviction on the upside and target the 1.2847 resistance.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we might have a bullish flag forming around the trendline. Today’s US Jobless Claims should give the direction as a break to the upside is likely to lead to a rally into the 1.2847 resistance, while a break to the downside should trigger a selloff into the 1.26 handle.
Upcoming Events
Today we will see the latest US Jobless Claims. This is a key report as the market is particularly focused on the labour market data. A miss should weaken the USD in the short term as the market will have another confirmation that the Fed may be done with rate hikes. On the other hand, a beat should trigger another hawkish repricing and support the greenback.
