The big USD selloff following the miss in the US CPI report has been recently completely erased as the US data continued to surprise to the upside and keep the chances of a rate hike after the July increase alive. In fact, the US Initial Claims last week beat expectations and fell to record lows while the US PMIs yesterday showed a mixed picture although the Manufacturing PMI beat expectations by a big margin. The Fed is expected to hike by 25 bps this week and remain data dependent. So, if we keep on getting good economic data, another rate hike is very likely.
Conversely, the UK CPI last 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 and this repricing weighed on the GBP.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD surged to the 1.31 handle and then started to roll off. The first leg lower was caused by the beat in the US Retail Sales Control Group. Then we got the big miss in the UK CPI report that weighed heavily on the GBP and took the pound lower as the market repriced interest rates expectations on the less hawkish side.
Finally, the beat in the US Initial Claims pushed Cable even lower to eventually erase the entire prior week of gains. The price is now trading around the red 21 moving average, which is generally a good dynamic support and resistance level.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price is starting to slowly bottoming out around the 1.2847 support. In fact, we can see that there’s a divergence with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the buyers should have more conviction in a resumption of the uptrend if the moving averages cross to the upside. That would be a good confirmation for a bounce and another possible rally.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price action is forming a falling wedge pattern around the 1.2847 support, which is confirmed by the divergence with the MACD given that these patterns are divergent in nature. If the price breaks out to the upside, we should see the buyers piling in and target the 1.2950 level. The sellers, on the other hand, are likely to lean on the upper bound of the pattern to position for a breakout lower and target the 1.27 handle.
Upcoming Events
Today we have the US Consumer Confidence report. The last time, we saw a big beat in the report and if we get another one today, we are likely to see some more US Dollar strength, while a miss should cause some more weakness. Tomorrow, the Fed is expected to hike by 25 bps and the market will want to see if the hint to something else or they just reaffirm their data dependency. On Thursday, the US Jobless Claims should support the USD in case the data beats expectations and weaken it if the data misses. Finally, on Friday, we will see the latest US PCE and ECI reports.
