US:
- The Fed left interest rates unchanged as expected at the last meeting.
- The macroeconomic projections were revised higher as the economy showed much stronger resilience than expected and the Dot Plot showed that the majority of members still expects another rate hike by the end of the year with less rate cuts in 2024.
- Fed Chair Powell reaffirmed their data dependency but added that they will proceed carefully.
- The latest US Core PCE came in line with expectations with disinflation continuing steady.
- The labour market remains fairly solid as seen last week with another strong beat in Jobless Claims and the NFP report.
- The ISM Manufacturing PMI beat expectations while the ISM Services PMI came in line with forecasts in another sign that the US economy remains resilient.
- The US PPI data yesterday surprised to the upside, but it was mainly energy driven and the market brushed it aside.
- The Fed members continue to cite elevated long-term yields as a reason to proceed carefully and pause in November as well.
- The market doesn’t expect the Fed to hike anymore.
UK:
- The BoE kept interest rates unchanged at the last meeting.
- The central bank is leaning more towards keeping interest rates “higher for longer” but it kept a door open for further tightening if inflationary pressures were to be more persistent.
- Key economic data like the latest employment report showed a very high wage growth despite the rising unemployment rate, but the latest UK CPI missed expectations across the board giving the BoE a bit of relief.
- The latest UK PMIs showed further contraction, especially in the Services sector.
- The market doesn’t expect the BoE to hike anymore.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the GBPUSD pair is now at a key resistance area where we have the confluence of the previous swing level, the 38.2% Fibonacci retracement level and the trendline. This is where we can expect the sellers to step in with more conviction and a better risk to reward setup to position for another selloff into new lows. The buyers, on the other hand, will want to see the price breaking higher to invalidate the bearish setup and turn the trend around.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the divergence with the MACD signalled the loss of the bearish momentum and the subsequent bounce. The break above the minor downward trendline gave the buyers even more conviction to target the major trendline around the 1.2320 level. The trend on this timeframe is clearly bullish as the price continues to print higher highs and higher lows with the moving averages being crossed to the upside. In case we start to see the price falling from the current levels, the buyers are likely to lean on the counter-trendline around the 1.2240 level to position for another rally and target the break above the major trendline. The sellers, on the other hand, will want to see the price breaking further below the counter-trendline to increase the bearish bets to new lows.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another divergence with the MACD right into the resistance area. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the divergence adds another layer of confluence for the sellers and a break below the trendline around the 1.2290 level should give the confirmation for an incoming selloff.
Upcoming Events
Today we will get the most important report of the week, that is the US CPI report. The market is likely to focus on the core measures and if the figures surprise to the upside the US Dollar is likely to appreciate as the Fed might raise rates again in November and the 2024 rate cuts could be repriced again. If the data surprises to the downside though, we could see the US Dollar weakening as the market could bring rate cuts forward and the fall in Treasury yields will weigh on the greenback.
At the same time, we will also see the latest US Jobless Claims data which is an important labour market report. The US Dollar is likely to appreciate both in case the data is much stronger than expected due to a more hawkish pricing and much weaker than expected figures as the risk sentiment might deteriorate due to recession fears. Tomorrow, we conclude the week with the University of Michigan Consumer Sentiment report.
