Fundamental Overview
The USD weakened
across the board recently due to a more dovish than expected FOMC decision last
week where the Fed decided to signal a bigger QT taper beginning in June and
the Fed Chair Powell pushing back repeatedly against rate hike expectations.
Moreover, the data on Friday showed that the Fed might indeed just keep rates
higher for longer as job and wage growth soften. The greenback has been erasing
some of the losses this week, but overall we have mostly a rangebound price
action in FX as we wait for the US CPI report next week.
The GBP, on the
other hand, has been gaining ground mostly because of the weaker USD and the
risk-on sentiment. Tomorrow, we have the BOE rate decision where the central
bank is expected to keep interest rates unchanged at 5.25%. The latest
inflation report
showed the headline and core figures moderating further while the labour market
data showed an
increase in the unemployment rate and job losses with high wage growth figures.
At the last meeting, the vote split changed with the most hawkish members
joining the hold camp and Dhingra remaining the usual dissenter voting for a
cut. The market expects the first rate cut in September and it’s unlikely that
we will see the BOE making major changes at the upcoming decision.
GBPUSD
Technical Analysis – Daily Timeframe
GBPUSD Daily
On the daily
chart, we can see that GBPUSD spiked above the trendline
following the US NFP release but eventually got rejected from the 1.26 handle
and faded all the gains leaving behind a possible fakeout. This is generally a
reversal pattern, although it would be better to pair it with a catalyst. Right
now, we are in kind of a limbo where the market has priced out the aggressive
rate cuts and remains pretty stable around the current pricing. The pair seems
now mostly driven by risk sentiment.
GBPUSD
Technical Analysis – 1 hour Timeframe
GBPUSD 1 hour
On the 1 hour
chart, we can see that from a risk management perspective, the sellers would
have a better risk to reward setup around the previous support
now turned resistance around the 1.2530 level. In fact, if the price were
to break above the resistance
and the trendline, the bearish setup would be technically invalidated and the
buyers will likely pile in with more conviction to position for a rally into
new highs.
Upcoming
Catalysts
Tomorrow we have the BOE policy decision and the US Jobless
Claims figures. On Friday, we get the University of Michigan Consumer Sentiment
survey. It’s unlikely that we will see major changes to the market’s
expectations, so the price action might remain tentative heading into the US
CPI next week.