The GBPUSD started the week with a 0.19% gain, attempting to recover from last week’s 0.37% decline. While last week saw GBPUSD retreat from two-week highs, fuelled by resurgent US Dollar demand, the US dollar shows signs of weakness during the FOMC blackout period, as Federal Reserve members attempt to push back against excessive rate cut expectations.
On the fundamental front, the GBPUSD faces a tug-of-war between hawkish and dovish narratives. Recent strong UK inflation data, surpassing market expectations, bolstered the case for continued Bank of England (BoE) tightening, offering some support to the Pound. However, weak retail sales figures, suggesting a possible slowdown in the UK economy, cast a shadow of doubt over the BoE’s hawkish stance.
Meanwhile, the US Dollar has found strength in resilient US economic data, including robust retail sales and jobless claims, leading to scaled-back expectations of aggressive Fed rate cuts. This hawkish tilt from the Fed further bolstered the greenback’s appeal. Additionally, simmering geopolitical tensions in the Middle East continue to act as a safe-haven bid for the USD, weighing on the high-beta Pound.
The 4-hour chart shows that the GBPUSD pair currently finds itself within a rising wedge pattern, hovering around the 1.27259 level. The price action trades above the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), indicating potential bullish bias. The upward-sloping 20-SMA and rising RSI suggest a possible upward continuation.
Therefore, short-term trading opportunities could exist towards the resistance level at the 1.27522 price level should the price action sustain the current upward trajectory. A break above the initial resistance could confirm the bullish momentum, likely bringing the 1.27856 and 1.28266 resistance levels into play.
Conversely, short-term trading opportunities could arise towards the support at 1.26730 should the price action sustain a push below the 23.60% Fibonacci retracement level and below the wedge. A break below the 1.26730 level would likely bring the 1.26481 and 1.25966 support levels into play in the short term.
The GBPUSD faces short-term headwinds from a strengthening Dollar and mixed UK data. However, the technical picture remains slightly bullish, with prices supported by moving averages. A break above 1.27522 could confirm bullish momentum, targeting 1.27856 and 1.28266. Conversely, a fall below 1.26730 could signal a bearish shift, potentially falling to 1.26481 and 1.25966.
Sources: TradingView, Trading Economics, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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