Last week the US CPI report missed across the board and led to a strong rally in GBPUSD as the market priced out the more hawkish path for the Fed and now expects the July hike to be the last one. The resilient labour market, the rising consumer sentiment and the better than expected Retail Sales, have also increased the chances of getting a soft landing which contributed to the positive risk sentiment and the USD weakness.
Conversely, the UK CPI this week missed expectations across the board and triggered a big repricing in interest rates expectations. In fact, the market was pricing a higher chance of a 50 bps hike prior to the report given the higher wages data in the previous UK employment report. Now, the market sees a higher chance that the BoE hikes by 25 bps at the upcoming meeting.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD had a massive run to the upside since bottoming out on the red 21 moving average. After the quick rally following the miss in the US CPI report, the price started to pull back as the stronger US Retail Sales gave the USD some support. The price is now close to a key support zone where we can find the previous swing high level, the 50% Fibonacci retracement level and the red 21 moving average for confluence. The buyers are likely to step in here with a defined risk below the level and target a new high.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the key support zone near the 1.2847 level. The price will need to bounce here to give the buyers the conviction to target new highs as a break lower would trigger a selloff into the 1.2680 level where we can also find the trendline. That would also be the first target for the sellers if the price breaks below the 1.2847 level.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the selloff following the miss in the UK CPI report bottomed out on the 50% Fibonacci retracement level and the price has even broke above the downward trendline. This might be a sign that the bearish momentum has weakened, and the buyers may have the upper hand. The price will need to create a new higher high breaking above the swing high at 1.2962 to confirm the change in trend and see more buyers piling in.
Today the market will focus on the US Jobless Claims report as the labour market data continues to be at the top of the market’s attention. A small miss or beat shouldn’t be market moving as the market is more likely to move on big deviations given the volatility of the report. In fact, a big beat should give the USD some support, while a big miss should pressure it even more as the market would bring forward the rate cuts expectations.