GBP/USD Under Pressure as US Inflation and Labor Data Comes into Focus
- Cable appears susceptible as the dollar receives another boost form the Fed
- US NFP data including the average hourly earnings figure come into focus before next week’s crucial CPI data
- GBP/USD pullback provides improved levels for bearish continuation plays
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
GBP/USD Retracement May Provide Improved Entry Points for Bearish Continuation
After Jerome Powell’s admission to the Senate Banking Commission that the pace of future rate hikes could pick up if the data indicates such an approach is necessary. In addition, Powell went on to state that the ultimate level of interest rates is likely to be higher than previously anticipated, sending the dollar and US bond yields higher.
On the second day of his testimony, Powell attempted to backtrack slightly on what he said the day before, clarifying that the Federal Open Market Committee (FOMC) is still yet to decide whether there will be a step up in the magnitude of the interest rate hike in March (from 25 basis points to 50).
Crucial Data Ahead
Something I will be keeping a close eye on in the days to come will be the US CPI print next Tuesday and the average hourly earnings for February which is due to be released by the Bureau of Labor Statistics, alongside the NFP number, on Friday. Data in the lead up to both prints suggest no obvious signs of accelerating disinflation or a drastic drop in employment.
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GBP/USD Technical Outlook
As the dollar appears to have shifted into another gear, the complex task of a trader involves finding a currency or asset where fundamentals and technical show potential. The pound is one that fits the bill, but others include the Aussie and Canadian dollar after both central banks appear to have paused on hikes – effectively opening the door to a widening interest rate differential.
The pound has struggled for any consistent loner-term drivers after narrowly avoiding a recession at the end of last year, while inflation remains in double digits and steady declines in productivity hamper growth. The UK is the only G7 nation yet to reclaim levels of gross domestic product (GDP) experienced before the pandemic. Wednesday's UK Spring Statement is likely to bring a bout of sterling volatility but political analysts suggest the Chancellor of the Exchequer Jeremy Hunt will resist the temptation to allocate the entire £30 billion in extra budget identified by the Office for Budget Responsibility (OBR) as the Tory party looks ahead to the 2024 national elections.
After the late confirmation of a double top around the zone of support 1.2445, GBP/USD has trended lower, often crossing below the psychological level of 1.2000 but failing to sustain subsequent bearish momentum. Helped by Powell’s hawkish comments, Tuesday’s drop not only broke below 1.2000 but also the 200 simple moving average and the 23.6% Fibonacci retracement of the 2022 rise; and even the yearly low of 1.1840. Given such a move it is only natural for the pair to see a short-term pullback before assessing a bearish continuation.
The imminent 200 SMA, the 23.6% Fib and 1.2000 all present possible pivot points or levels of resistance for another move lower. In contrast to AUD/USD and USD/CAD, cable isn’t in oversold territory, meaning there could still be room for a move to the downside. The 2016 low of 1.1685 and 28.2% Fib retracement appear as notable levels of support.
GBP/USD Daily Chart
Source: TradingView, prepared by Richard Snow
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.