Fundamental
Overview
The USD has been under some
pressure in the last couple of weeks as the weaker US data and the selloff in
the US stock market increased the expectations for more easing by year-end with
the market now fully pricing in three rate cuts.
Today we get the US CPI
report and it could be a tricky one for the US Dollar. Logically one would
expect more weakness for the greenback in case we get a soft report, but we
might even see a counterintuitive short-term appreciation on a relief rally in equities.
A hot report, on the other
hand, might give the greenback a boost against the major currencies on risk-off
flows although even here we could see the US Dollar depreciating amid falling
long term Treasury yields with the market expecting the Fed holding off from
cutting even in the face of more economic slowdown and eventually leading to
more aggressive cuts.
On the GBP side, the recent
news on European defence spending boosted the pound as well given that the EU
is UK’s largest trading partner. On the domestic front, the data continues to
put the BoE in an uncomfortable position given the high wage growth and sticky
inflation. The market expects just two rate cuts by the end of the year.
GBPUSD
Technical Analysis – Daily Timeframe
GBPUSD Daily
On the daily chart, we can
see that GBPUSD is trading right in the middle of two key levels. From a risk
management perspective, the buyers will have a better risk to reward setup
around the support zone around the 1.28 handle. The sellers, on
the other hand, will look for a break below the support to increase the bearish
bets into the major trendline around the 1.26 handle.
GBPUSD Technical Analysis – 4 hour Timeframe
GBPUSD 4 hour
On the 4 hour chart, we’ve
been seeing some consolidation ahead of the US CPI release. If we get a spike
into the 1.3046 level, we can expect the sellers to step in with a defined risk
above the level to position for a drop into the 1.28 handle next. The buyers,
on the other hand, will want to see the price breaking higher to extend the
rally into new highs.
GBPUSD Technical
Analysis – 1 hour Timeframe
GBPUSD 1 hour
On the 1 hour chart, there’s
not much we can add here as we have a rangebound price action and we have the
US CPI report coming out shortly. From a risk management perspective, it would
be better to wait for the release before taking new positions. The red lines
define the average daily range for today.
Upcoming Catalysts
Today we have the US CPI report. Tomorrow,
we get the US PPI data and the US Jobless Claims figures. On Friday, we
conclude the week with the UK GDP and the University of Michigan Consumer
Sentiment report.
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