USD
- The Fed left interest rates unchanged as expected at the last meeting with a shift in the statement that indicated the end of the tightening cycle.
- The Summary of Economic Projections showed a downward revision to Growth and Core PCE in 2024 while the Unemployment Rate was left unchanged. Moreover, the Dot Plot was revised to show three rate cuts in 2024 compared to just two in the last projection.
- Fed Chair Powell didn't push back against the strong dovish pricing and even said that they are focused on not making the mistake of holding rates high for too long.
- The latest US PCE missed expectations across the board with the Core 6-month annualised rate falling below the Fed’s target at 1.9%.
- The labour market has been softening via less job opportunities rather than more layoffs with the Initial Claims hovering around cycle lows and Continuing Claims remaining high.
- The latest ISM Manufacturing PMI missed expectations falling further into contraction, while the ISM Services PMI beat forecasts holding on in expansion.
- The market expects the Fed to start cutting rates in Q1 2024.
GBP
- The BoE left interest rates unchanged as expected at the last meeting with no dovish language as they reaffirmed that they will keep rates high for sufficiently long to return to the 2% target.
- Governor Bailey pushed back against rate cuts expectations as he said that they cannot say if interest rates have peaked.
- The latest employment report missed forecasts with wage growth coming in much lower than expected and job losses in November.
- The UK CPI missed expectations across the board, which is another welcome development for the BoE.
- The UK PMIs showed the Manufacturing sector falling further into contraction while the Services sector continues to expand.
- The latest UK Retail Sales missed expectations across the board by a big margin as consumer spending remains weak.
- The market expects the BoE to start cutting rates in Q2 2024
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD recently broke the key trendline opening the door for more downside. We can see that the latest rallies formed what looks like a rising wedge and have been diverging with the MACD. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the target for the pullback should be the 1.25 handle with a further break lower opening the door for much lower prices.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the pair is bouncing on the support zone around the 1.26 handle. The price was a bit overstretched anyway as depicted by the distance from the blue 8 moving average. In fact, in such instances, we can generally see a pullback into the moving average or some consolidation before the next move. The sellers should lean on the broken trendline to position for another drop into the 1.25 handle, while the buyers might increase their bullish bets if the price breaks to the upside.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the current price action with the pair correcting higher after yesterday’s big drop. The sellers might want to split their position in half as we have two good entry points:
- The first one around the broken trendline where we can find the 38.2% Fibonacci retracement level and the 4-hour 8 moving average for confluence.
- The second one around the downward trendline where we can find the 61.8% Fibonacci retracement level and the 4-hour 21 moving average for confluence.
The buyers, on the other hand, will likely increase their bullish bets at every break higher targeting the 1.29 handle.
Upcoming Events
This week is full of key economic data which will culminate with the NFP report on Friday. We begin today with the US ISM Manufacturing PMI and Job Openings and given the recent trends there could be room for disappointment. Later in the day, we will get the release of the FOMC Minutes, but it’s not expected to be market-moving given that it’s three weeks old data. Tomorrow, we will have another slate of US labour market data with the release of the US ADP and Jobless Claims figures. Finally, on Friday, we conclude the week with the NFP report and the ISM Services PMI.
