Yesterday marked the eagerly awaited unveiling of the US CPI report, and the response from the GBPUSD currency pair was anything but ordinary. US year-over-year inflation came in at 3.4%, surpassing the expected 3.2%, with the figure climbing from the previous 3.1%. Correspondingly, core inflation stood at 3.9%, failing to decelerate to the projected 3.8% from the earlier 4% reading.
The initial market reaction unfolded as anticipated, with the US Dollar gaining ground at the expense of the equity market. However, the greenback swiftly relinquished its gains in an unexpected turn of events. Surprisingly, market expectations regarding the likelihood of rate cuts in March held steady at around 70%, as indicated by the CME FedWatch Tool.
Contrary to expectations, the GBPUSD pair closed the day on a positive note, eagerly anticipating the upcoming UK GDP figures scheduled for release on Friday. The UK reported year-over-year GDP growth at 0.2%, aligning with predictions. On the downside, the 3-month average GDP growth slipped to -0.2%, falling short of the consensus of -0.1%, triggering some bearish price action for the currency pair.
Technical
On the 4H chart, an ascending channel is in play, but the recent crossing of the 50-SMA (blue line) below the 100-SMA (orange line) could signal the potential for a reversal as the bears look to overpower the bulls in the shorter term. Support at 1.2766 is currently under pressure, and a breakdown could see the currency pair test the 61.8% Fibonacci golden ratio at the dynamic support of the channel, making it vulnerable to a trend reversal in the upcoming sessions.
A breakdown at 1.2745 could entice the sellers to catalyse the reversal, with support at the Fibonacci midpoint of 1.2719, posing the first potential hurdle to the downside. Clearance below this support could result in a sustainable downturn, bringing lower support at 1.2695 and 1.2653 into the picture in the upcoming days.
However, if support at 1.2766 holds the sellers off, the current trend could continue trickling toward 1.2789 within the channel formation. While a temporary pullback could occur here, failure to break down the channel could soon cause the pair to test higher resistance at 1.2828.
Summary
After navigating the US inflation and UK GDP data, the GBPUSD currency pair remains trading within an ascending channel. However, if the support at 1.2766 fails to hold, the 61.8% Fibonacci golden ratio at 1.2745 could soon be under pressure as the last line of defence against a channel breakdown that could result in a trend reversal.
Sources: CME Group, Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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