The latest news on job numbers was a mixed bag. While the non-farm payrolls (NFP) beat expectations, we also saw a rise in unemployment and a decrease in average weekly hours. These not-so-great details caused the USD to lose some strength as the market started to reprice the hawkish expectations on a less hawkish side. The ISM Services PMI didn't help either. It fell short of expectations, especially in the prices paid sub-index, which gave people hope that maybe core inflation could start falling soon.
Turning to jobless claims, there was a significant deviation from the expected figures. However, it is important to consider the impact of seasonal adjustments on these results. On a positive note, continuing claims showed further improvement, indicating that individuals are finding new employment relatively quickly after experiencing unemployment.
Overall, the previously upbeat sentiment in May has started to wane, as evidenced by the recent shift in the views of Federal Reserve members. They have expressed a preference to exercise caution and avoid taking major actions during the upcoming Federal Open Market Committee (FOMC) meeting, and the latest set of data justifies their concerns.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Head and Shoulders pattern we highlighted the last time seems to be getting invalidated. In fact, GBPUSD is again breaking out of the range around the 1.2444 level and the moving averages have crossed to the upside possibly signalling a bigger rally to come. All else being equal, we should see the buyers extending the rally into the 1.2680 high.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price recently probed above the range but got smacked back down soon after. The price yesterday bounced on the 1.25 handle, where we had a previous swing level and the 50% Fibonacci retracement level, and started to rally again. It’s been a push and pull in the past days as the market is undecided where to go next ahead of the US CPI report. A break above the 1.26 handle should give the buyers more conviction for a rally towards the 1.2680 high or beyond.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have two important levels now:
- The 1.26 resistance.
- The 1.25 support.
The buyers will need to break above the 1.26 handle to extend the rally, while the sellers will need to break below the 1.25 level to increase the bearish momentum. Anyway, it will all come down to the fundamentals this week.
This week is filled with significant events, kicking off with the release of the US CPI report today. This report is expected to solidify market expectations for the upcoming FOMC rate decision tomorrow. If the CPI data disappoints across the board, we can anticipate a potential rally in the GBPUSD pair. Conversely, if the CPI beats across the board, we should see a selloff. Market attention is likely to be focused on the Core CPI, making it the key metric to monitor closely.
As the week progresses, we also have the Jobless Claims report and the University of Michigan consumer sentiment survey. The consumer sentiment survey had a notable impact on the market during its last release, especially due to the substantial increase in long-term inflation expectations. Consequently, a miss in this piece of data would be welcomed news for GBPUSD bulls.