USD
- The Fed left interest rates unchanged as expected with a shift in the statement that indicated the end of the tightening cycle.
- The Summary of Economic Projections showed a downward revision to Growth and Core PCE in 2024 while the Unemployment Rate was left unchanged. Moreover, the Dot Plot was revised to show three rate cuts in 2024 compared to just two in the last projection.
- Fed Chair Powell didn't push back against the strong dovish pricing and even said that they are focused on not making the mistake of holding rates high for too long, which implies a rate cut coming soon.
- The US CPI last week came in line with expectations with the disinflationary progress continuing steady. This was also confirmed by the US PPI the day after where the data missed estimates.
- The labour market has been showing signs of weakening lately but we got some strong releases recently with the US Jobless Claims and the NFP coming in strongly.
- The US Retail Sales last week beat expectations across the board as consumer spending continues to hold.
- The latest ISM Manufacturing PMI missed expectations falling further into contraction, while the ISM Services PMI beat forecasts holding on in expansion.
- The market expects the Fed to start cutting rates in Q1 2024.
GBP
- The BoE left interest rates unchanged as expected with no dovish language as they reaffirmed that they will keep rates high for sufficiently long to return to the 2% target.
- Governor Bailey pushed back against rate cuts expectations as he said that they cannot say if interest rates have peaked.
- The latest employment report missed forecasts with wage growth coming in much lower than expected and job losses in November.
- The recent UK CPI missed expectations across the board, which was a welcome development for the BoE.
- The UK PMIs showed the Manufacturing sector falling further into contraction while the Services sector continues to expand.
- The latest UK Retail Sales missed expectations across the board by a big margin as consumer spending remains weak.
- The market expects the BoE to start cutting rates in Q2 2024
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD last week probed above the resistance as the BoE kept its hawkish language in stark divergence with the Fed but eventually the pair erased most of the gains. We can also notice that this latest leg higher was diverging with the MACD, which is generally a sign of weakening momentum often followed by pullbacks or reversals. The buyers are likely to lean on the trendline and the 50% Fibonacci retracement level to position for another rally.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price has been reacting to two key levels: the 1.2593 where we can find the 50% Fibonacci retracement level for confluence and the 1.2743 where we have the 61.8% Fibonacci retracement level. The 1.2593 support zone will be a key spot for the buyers as they will also have the confluence with the trendline. The sellers, on the other hand, will want to see the price breaking lower to invalidate the bullish setup and position for a selloff into the 1.2190 level.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the current price action with the pair trading inside what looks like a falling channel, although it’s too premature to define it as the price have not yet made a new lower low. In either case, from a risk to reward perspective, the buyers should wait around the trendline for new long positions, while the sellers should look for a breakout to the downside to start targeting new lows.
Upcoming Events
This week is a bit empty on the data front as we head into the Christmas holidays. Tomorrow, we have the UK CPI and the US Consumer Confidence reports. On Thursday, we get the latest US Jobless Claims figures, while on Friday we conclude the week with the UK Retail Sales and the US PCE data.
