The Federal Reserve this week was a bit more hawkish by
keeping interest rates steady at 5.00-5.25 but raising their projected terminal
rate by 50 basis points in the Dot Plot. The FOMC decided to take a pause in
this meeting to gather additional economic data before deciding on a possible
interest rate hike in July. Their caution may be justified by the weaker
details in the latest NFP report, the ISM Services PMI report, and the CPI report, which showed a sticky and high core
inflation though.
During the press
conference, Fed Chair Powell mentioned that the July meeting is “live” but didn’t
want to make a commitment in advance. When the Dot Plot was released, the
market initially responded with a quick bid in the US Dollar, but it returned
to its original levels once Powell’s press conference began. Overall, this
indicates that the Federal Reserve is prepared to take further action to
control inflation, but their decisions will depend on the incoming economic
data. Yesterday, the number of US Jobless Claims once again missed expectations by a
significant margin, which could be another indication of a weakening labour
market.
The BoE is on track to keep
raising interest rates given the recent very hot employment report that showed a worryingly fast
increase in wage growth. Given the Fed’s pause and the weaker data, this
created a policy divergence between the Fed and the BoE, ultimately favouring
the pound.
GBPUSD Technical Analysis –
Daily Timeframe
GBPUSD Daily
On the daily chart, we can see that as soon as the
GBPUSD broke out of the range, it took off helped by the strong UK employment
report, the Fed pause and the miss in Jobless Claims. The price is now a bit
overstretched though as we can see by the price distance from the blue 8 moving average.
Generally, we can see some consolidation or a pullback to bring it back into
equilibrium before the next move. Of note, the divergence with the
MACD
increases by the week and we could see some big moves once we get a catalyst.
GBPUSD Technical Analysis –
4 hour Timeframe
GBPUSD 4 hour
On the 4 hour chart, we can see that there’s pretty
much nothing that the buyers or sellers can use to enter the market at these
levels. In fact, from a risk management perspective, the buyers should wait for
a pullback into the 1.2680 support where we
can also find the 38.2% Fibonacci retracement level
and the red 21 moving average. This would be a good level to lean on and would
give a better risk to reward setup. The sellers, on the other hand, should wait
for a break below the trendline before
piling in and extend the fall into the 1.2444 level.
GBPUSD Technical Analysis –
1 hour Timeframe
GBPUSD 1 hour
On the 1 hour chart, we can see that more
aggressive sellers may even try to pile in once the price breaks below the
minor swing low at 1.2767 to target the 1.2680 support. We are likely to find
strong buyers there, all else being equal.
Today,
the market will pay close attention to the University of Michigan consumer
sentiment report. Last time, the market reacted strongly to this report because
long-term inflation expectations experienced a significant increase, going up
from 3.0% to 3.2%. However, the number was later revised to 3.1%. Therefore, if
we witness another increase in long-term inflation expectations, it’s expected
that the dollar will rise. Conversely, if the data falls short of forecasts,
the dollar is likely to decline.