The Fed decided to pause
its tightening cycle at 5.00-5.25% as it wants to see more data before
delivering another hike. The Fed is trying to reach an optimal level of
monetary restraint that would bring inflation back to target without too much
damage to the economy. They keep repeating that they are data-dependent and if
the economy remains strong, they will have to do more.
The BoE, on the other hand, surprised with a bigger
than expected 50 bps hike after the hot inflation report the day before and
it’s expected to keep raising rates until the inflation outlook improves. Given
the Fed’s pause and the BoE’s more aggressive move, there’s a policy divergence
between the two central banks which should favour the British Pound.
GBPUSD Technical Analysis –
Daily Timeframe
GBPUSD Daily
On the daily chart, we can see that the incredible
rally in GBPUSD has stalled at the 1.2847 high. Since tapping into that price
level, GBPUSD started to pull back and not even a hot CPI and a surprising 50
bps BoE hike could make it to extend higher. This should be a sign that the
rally got overstretched and the market needs a healthy pullback before another
move. The first support should be
the 1.2680 level.
GBPUSD Technical Analysis –
4 hour Timeframe
GBPUSD 4 hour
On the 4 hour chart, we can see that the moving averages have
crossed to the downside signalling a change in momentum. We can also find the
38.2% Fibonacci retracement level at
the 1.2680 support which should give the zone a bit more strength. The buyers
are likely to lean on this support zone with a defined risk below it and target
a new high. The sellers, on the other hand, will want to see the price breaking
lower to pile in and extend the fall into the 1.25 handle.
GBPUSD Technical Analysis –
1 hour Timeframe
GBPUSD 1 hour
On the 1 hour chart, we can see that
GBPUSD couldn’t break above the 1.28 resistance as even the spike after the
bigger than expected hike was faded. That level is clearly significant, so the
buyers should have even more conviction to keep bidding if the price manages to
break above that level.
Today, we have the US
PMIs on the agenda and it’s likely that a beat leads to more USD strength as it
would make the market to price in the second hike expected by the Fed, but if
the data misses, we should see the USD weakening as the market would price out
the hike expected in July.