Fundamental Overview
The USD performance has been mixed in the past days but still on net negative despite the decreasing December rate cut odds. It looks like the stock market is what has been driving all other markets.
In fact, when the stock market had positive days, we’ve seen Treasury yields and the US dollar rising, but when stocks performed poorly, Treasury yields and the greenback gave back the gains. The market might be thinking that a selloff in the stock market is going to weigh significantly on the economy, eventually requiring the Fed to cut more or more aggressively.
The focus now is of course on the Fed and the US labour market data ahead of the December FOMC meeting. The market pricing is now showing just a 42% chance of a cut in December, so the data will have the final say.
I don't think the September NFP tomorrow is going to matter much if it's soft given that it's old data (jobless claims will actually be more important for me), but a strong report might be taken as meaningful because the market could think that conditions were already getting better in September before the two rate cuts.
Therefore, I think the November NFP is going to have the final say, which will hopefully get released just before the FOMC meeting in December (we won't get the November CPI in time).
On the GBP side, the BoE held the Bank Rate steady with a 5-4 vote split. In the press conference, BoE Governor Bailey sounded like a December cut was conditional on a confirmation of the improvement in inflation.
The latest UK employment report missed across the board and raised the probabilities for a December cut to 80%. Today, we got the UK CPI report and, although the data was mostly in line with expectations, the rate cut probabilities increased to 85%.
The BoE will still get another employment and inflation report, so they will have enough data to make a better decision.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD reached the 1.32 handle before pulling back a bit. We have a major downward trendline defining the bearish structure. If the price rallies into the trendline, we can expect the sellers to lean on it with a defined risk above it to position for a drop into the 1.2712 level. The buyers, on the other hand, will want to see the price breaking higher to pile in for a rally into the 1.34 handle next.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a strong support zone around the 1.31 handle where we got several rejections in the past weeks. If the price gets there, we can expect the buyers to step in with a defined risk below the support to position for a rally into the major trendline targeting a breakout. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into new lows.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here as the buyers will look for longs around the support, while the sellers will look for shorts around the major trendline or on the break below the support. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the FOMC meeting minutes. Tomorrow, we get the September NFP report and the US Jobless Claims data. On Friday, we have the UK Retail Sales data, and the UK and US Flash PMIs.
