Pound Sterling (GBP/USD, EUR/GBP) Analysis
- All eyes on highly anticipated Fed hike this evening
- GBP/USD remains supported, grinds higher within ascending channel
- EUR/GBP testing long-term resistance ahead of tomorrow’s ECB decision
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
All Eyes on the Highly Anticipated Fed Hike this Evening
This evening the FOMC is due to announce one of the most highly anticipated rate hikes throughout the current tightening cycle. Despite fluctuating bond movements, the Fed already predetermined the Fud funds rate peak at 5.1% (median value) suggesting a hike above 5% would be the last.
Just yesterday, markets priced in more than 97% chance that we will indeed see a 25-basis point (bps) hike this evening, a number that has retreated in light of the undeniable risk off move witnessed yesterday as the US came online. Renewed banking fears worked their way through the industry once more after JP Morgan absorbed First Republic Bank, seeing oil trade significantly lower while the safe haven, gold, shot up above its recent range.
Source: CME FedWatch Tool
GBP/USD Remains Supported, Grinds Higher Within Ascending Channel
Cable has certainly benefitted from the slow grind lower in the dollar, seeing the pair mark a new yearly high on Friday. Rate hikes usually tend to support the local currency but markets are already looking ahead to around 50 bps worth of rate cuts in anticipation of deteriorating economic conditions.
With the Fed anticipated to reach its peak this evening, the BoE continues on its hiking path since inflation remains in double digits - the highest in western Europe and amongst developed nations. It is with this in mind that cable trends higher – within the ascending channel after recently bouncing off support at 1.2445. Upside resistance at 1.2585 remains in focus ahead of the FOMC meeting.
Source: TradingView, prepared by Richard Snow
EUR/GBP testing long-term resistance ahead of tomorrow’s ECB decision
The chart below reveals a narrowing of price action as lower highs and higher lows have emerged in 2023 for EUR/GBP. The lack of longer-term direction is unsurprising given both central banks are motivated to keep raising interest rates in their fight against inflation.
On a technical front, the pair was met with rather stern resistance at 0.8865 in the lead up to the disappointing April 27th US GDP data which added to growing concerns surrounding global growth. The move reversed sharply higher after reaching 0.8760 and now tests the major trendline resistance. Upside challenges remain above current levels with 0.8865 proving a tough nut to crack if we see further follow through. On the downside 0.8760 marks the next significant level of support.
EUR/GBP Daily Chart
Source: TradingView, prepared by Richard Snow
High Importance Data this Week
As for the sterling, there is a distinct lack of event risk with Brits looking ahead to the King’s coronation on the weekend before the Bank of England meet next week. The Fed dominates scheduled risk events today with the ISM services PMI print ahead of the all important FOMC rate decision and press conference. Tomorrow, it’s the turn of the ECB with its own press conference and we end off the week with the non-farm payroll report after US job openings (JOLTS) data revealed around 384k job openings were removed. Could this provide an early sign of a tightening labour market? Perhaps, but a significant decline in NFP data would need to accompany it.
Customize and filter live economic data via our DailyFX economic calendar
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
