It has been quite the bounce in cable this week, after the poor showing on Monday especially. The pair moved down to test 1.2300 before rebounding by over 200 pips now to 1.2520 levels. Of note, buyers have turned the near-term bias in their favour and things might yet continue in the sessions ahead.
So, what are the key levels to be mindful of should the bounce this week extend?
GBP/USD daily chart
First up is the 38.2 Fib retracement level at 1.2526, offering some minor resistance for now. Above that is the 200-day moving average (blue line) at 1.2559 and that is a more pivotal level to be wary of. Sellers will look to lean on that to quell any further upside momentum, so that will be one to watch in the days to come.
Looking over to the fundamentals, a key catalyst for any moves this week will be US data as outlined here. The dollar is ceding some ground after a good showing in early April and the data in the next two days might go some ways in deciding its overall fate on the month.
The BOE looks slated for an August rate hike and traders were punished for trying to sneak in a June move in the last few weeks. For now, the odds of an August move are ~90% priced in. So, unless traders are going to switch back to thinking about June, the pound’s downside on this front might be more limited. That especially since the BOE has also made clear that they aren’t quite favouring a move as early as two months from now.
Meanwhile, the Fed pricing shows ~96% odds of a rate cut in September. That comes after some hotter US data in early April, but there seems to be a bit of a rethink again after some cooler ones lately. It’s all about moving with the data flow and if we do get some softer US data in the next two weeks, a July move (50% priced in now) might even be on the table.
As such, the balance of risks appear to have shifted a bit for GBP/USD. That as well considering the technical momentum to the downside has been arrested earlier this week.