Fundamental Overview
The USD came under some pressure at the start of last week following the US CPI report as the data came mostly in line with expectations. In the following days though, we got some hottish data with the US PPI beating expectations by a big margin, the US Jobless Claims improving further and the inflation expectations in the UMich survey surprising to the upside.
Overall, we ended the week basically flat on the US dollar as the aggressive dovish expectations on the Fed got trimmed a bit. Nevertheless, given the overreaction from the Fed members to the last soft NFP, a September cut looks unavoidable now and only a hot NFP report in September might get us to a 50% probability (although it would certainly diminish expectations for rate cuts after the September one).
The focus has now switched to Fed Chair Powell’s speech at the Jackson Hole Symposium on Friday. Traders will be eager to see if he changes his stance as well. Most likely though, he won’t pre-commit to anything and just reiterate that they will decide based on the totality of the data.
On the GBP side, the BoE delivered a hawkish cut at the last meeting with the first voting round failing to produce a majority. It was the first time ever the BoE had to conduct two voting rounds to reach a majority. Moreover, inflation forecasts were revised upwards, and the statement leant on the more hawkish side with these two lines: “upside risks around medium-term inflationary pressures have moved slightly higher” and “the restrictiveness of monetary policy has fallen.”
The central bank is finally acknowledging that inflation should be their biggest concern given that the UK still has one of the highest inflation rates among the major countries. In fact, core inflation has never fallen below 3% since 2021. Couple that with high wage growth and a central bank that is cutting rates, and the outlook gets very tricky for the BoE. This week the focus will be on the UK CPI data.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD has rallied all the way up to the key swing level at 1.3590. This is where the sellers stepped in with a defined risk above the level to position for a drop back into the 1.3368 level. The buyers, on the other hand, will need the price to break higher to start targeting the next key level at 1.3790.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we broke through the minor upward trendline that was defining the bullish momentum on this timeframe. The sellers will likely pile in here to target a correction into the 1.3368 level, while the buyers will need a break above the 1.3590 level to invalidate the bearish setup.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much we can add here although on an intraday basis, we have the most recent swing level at 1.3520 defining the bullish structure. A break below that level should see the sellers increasing the bearish bets into new lows. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we have Fed’s Bowman speaking. On Wednesday, we have the UK CPI report, Fed’s Waller and the FOMC meeting minutes. On Thursday, we get the UK and US Flash PMIs as well as the US Jobless Claims figures. Finally, on Friday, we conclude the week with Fed Chair Powell speech at the Jackson Hole Symposium.
