The USD’s big sell-off following the omission of the US CPI report was completely erased recently as US data continued to surprise to the upside, keeping the chances of a rate hike after the July hike alive. Actually, Initial US Claims last week it beat expectations and fell to record lows US PMI showed a mixed picture yesterday, although the manufacturing PMI beat expectations by a wide margin. The Fed is expected to hike 25 bps this week and remain data-driven. So if we continue to get good economic data, further rate hikes are very likely.

On the contrary, UK CPI missed all expectations last week and prompted a major reassessment of interest rate expectations. In fact, ahead of the report, the market was pricing in a higher chance of a 50bps hike given the stronger UK wages data earlier. employment report. Now the market sees a better chance of a 25bps hike from the BoE in the upcoming meeting and this revaluation has weighed on the GBP.

GBPUSD Technical Analysis – Daily Time Frame

On the daily chart, we can see that GBPUSD surged to the 1.31 handle and then started to decline. The first leg below was caused by a strike at v US Retail Sales Review Group. Then we got a big miss in the UK CPI report which weighed heavily on the GBP and pulled the pound lower as the market reassessed interest rate expectations to a less hawkish side.

Finally, a hit in US Initial Claims pushed Cable even lower to eventually erase all of the previous week’s gains. The price is now trading around the red moving average of 21, which is generally a good dynamic level of support and resistance.

GBPUSD Technical Analysis – 4 Hour Time Frame

On the 4-hour chart, we can see that the price is starting to slowly bottom out around the 1.2847 support. In fact, we can see that it exists divergence with
MACD which is generally a sign of fading momentum, often followed by pullbacks or reversals. In this case, buyers should be more confident about the resumption of the uptrend if the moving averages turn up. This would be a good confirmation for a bounce and another possible rally.

GBPUSD Technical Analysis – 1 Hour Time Frame

On the 1-hour chart, we can see that the price action is forming a bearish one wedge pattern around the 1.2847 support, which is confirmed by the divergence with the MACD given that these patterns are divergent in nature. If the price breaks out higher, we should see buyers and target the 1.2950 level. Sellers, on the other hand, are likely to lean on the upper boundary of the pattern to position themselves for a breakout below and target the 1.27 handle.

Upcoming events

Today we have a US consumer confidence report. We last saw a big beat on the report and if we get another one today we’ll likely see more strength in the US dollar, while a miss should cause further weakness. The Fed is expected to hike 25 basis points tomorrow, and the market will want to see if that suggests otherwise or just reaffirms its reliance on the data. On Thursday, US Jobless Claims should support the USD if the data beats expectations and weaken if the data is missing. Finally, on Friday we will see the latest US PCE and ECI reports.