Fundamental Overview
The US Dollar continues to consolidate around the highs although it’s stronger against the commodity currencies. In the bigger picture, the market reached the peak in the repricing of interest rates expectations, and it will need stronger reasons to price out the remaining rate cuts for 2025.
In fact, despite lots of strong US data, the market’s pricing remaining largely unchanged around three rate cuts by the end of 2025. The focus is now on the US CPI report. It looks like the Fed really wants to cut next week before pausing for some months. So, we might need an upside surprise in the core inflation numbers to force them to change plans.
Even if the Fed decides to cut next week despite a hot CPI, the market will likely scale back further the rate cuts expectations for 2025 and that could trigger some risk aversion with the US Dollar rallying across the board. The best scenario would be a soft report given the overstretched long positions in the greenback. In such a case, we can expect the US Dollar to selloff across the board.
On the GBP side, the last UK CPI report came in higher than expected. The BoE’s members sounded a bit less dovish recently and although BoE’s Governor Bailey expects four rate cuts by the end of 2025, the market thinks otherwise seeing three rate cuts as the most likely scenario for now.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD managed to break above the major downward trendline. The bullish momentum might now increase but it will need support from a benign US CPI today as a hot report will likely boost the USD. The sellers will want to see the price breaking below the major upward trendline to position for a drop into the 1.23 handle next.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a minor upward trendline defining the current bullish momentum. We have also a strong support zone around the 1.2715 level which should give the buyers a strong technical level where to lean on with a defined risk below the support. The sellers, on the other hand, will want to see the price breaking lower to position for a drop into the major upward trendline.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here as the US CPI report today should decide where we go next. A break above the counter-trendline around the 1.2780 level should increase the bullish momentum. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the US CPI report. Tomorrow, we have the US Jobless Claims and the US PPI. Finally, on Friday we conclude the week with the UK GDP.
