The GBPUSD currency pair has recently shown notable strength, trading 22 basis points higher week-to-date, following a significant 1.41% gain in the previous week.
This uptrend comes amidst a backdrop of a softening U.S. economy, highlighted by a cooling labour market and rising jobless claims. These factors are diminishing one of the key drivers of inflation. U.S. inflation was reported at 3.4% in April, a slight decrease from the previous month, with core inflation marking its slowest annual growth since April 2021.
These economic indicators have raised market expectations for potential rate cuts by the Federal Reserve, exerting downward pressure on the U.S. dollar. Current market sentiment reflects a 60% chance of a rate cut in September. Meanwhile, the U.K. reported inflation at 2.3%, surpassing expectations but significantly lower than the previous month. This higher-than-expected inflation reading could support the case for prolonged higher interest rates in the U.K., potentially boosting the British Pound. Traders are now keenly awaiting the release of the U.S. FOMC Minutes to better understand the Federal Reserve’s stance on monetary policy.
Technical
The GBPUSD currency pair is currently trading in a robust uptrend, staying above its 100-day moving average. This ascending channel pattern validates the upward trajectory, with support emerging at the 1.24457 level, which aligns with the lower boundary of the channel. From this support level, the pair surged and broke past a one-month high, highlighting strong bullish momentum.
The pair is now approaching resistance at the 1.28026 level, a key level formed from a significant selloff in the first quarter of the year and serving as a two-month high. The recent upward momentum has brought GBPUSD close to this resistance level, and should the bullish sentiment persist, this level could be fully retested.
However, technical indicators suggest caution. The Relative Strength Index (RSI) shows overbought conditions accompanied by a decline in upside volumes, indicating that the upward momentum may be waning. If downward pressures resurface, the 100-day moving average could become a critical point of interest for traders, potentially providing a support level to watch closely.
Summary
The GBPUSD shows strong momentum, trading above its 100-day moving average. With support at 1.24457 and resistance at 1.28026, the pair nears a critical juncture. Overbought RSI and declining volumes suggest caution as traders await the FOMC Minutes for further direction.
Sources: Office for National Statistics, CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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