Fundamental Overview
The USD has been stronger across the board since the hawkish turn from Fed Chair Powell at the last FOMC press conference. The repricing in interest rate expectations acted as a tailwind for the greenback as Treasury yields continued to push higher.
Yesterday, we got a couple of strong US data. The US ADP beat forecasts (although that was expected) and the ISM Services PMI came in much better than expected with the price index pushing into a new cycle high.
Despite the strong data, the greenback failed to extend the rally. This is generally a signal of a short-term top with the market needing more to keep the trend going. In fact, the market pricing is now showing a 60% probability of a December cut, which is just right. The data in December will probably have the final say and hopefully we will get an NFP and CPI report before the next FOMC decision.
On the GBP side, the BoE is expected to hold the Bank Rate steady today at 4.00% and the QT pace unchanged. The vote split is expected to be 6-3 in favour of a hold with Dhingra, Taylor and Ramsden voting for a cut (Dhingra and Taylor could vote for a 50 bps cut but it won't be unexpected).
The central bank will also release updated economic projections where a slight downward revision to inflation is expected and a new minutes format that includes individual perspectives from MPC members.
The market expects the central bank to open the door for a cut in December, so if we get that, it shouldn't be surprising, but it could still weigh on the pound as rate cut probabilities would increase. On the other hand, the pound could strengthen if we don't get any signal or hint for a December cut, or even a pushback against market's expectation.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD broke below the key 1.3140 level recently which might have opened the door for a drop into the 1.2712 level next. For now, the USD seems to have run out of steam as it failed to rally on strong US data. From a risk management perspective, the sellers will have a better risk to reward setup around the 1.3140 level and the major downward trendline to keep targeting new lows. The buyers, on the other hand, will look for upside breakouts to pile in and extend the pullback into new highs.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, there’s not much we can glean from this timeframe as the two key resistance zones remain around the 1.3140 level and the 1.3250 where we have the major trendline. We need to zoom in to see some more details.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another minor downward trendline defining the bearish momentum. We can expect the sellers to lean on the trendline with a defined risk above it to keep pushing into new lows, while the buyers will look for a break higher to extend the pullback into the 1.3140 level next. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the BoE policy decision. Tomorrow, we conclude the week with the US University of Michigan Consumer Sentiment report.
