As the US Dollar grapples with uncertainties stemming from market expectations of imminent rate cuts, the British Pound is navigating its own challenges, injecting a captivating dynamic into the GBPUSD currency pair. This week, the UK unveiled its latest inflation figures, triggering a noteworthy shift in the currency pair’s trend.
Year over year, inflation retreated to 3.9%, marking a significant drop from the previous 4.6% and falling well below the 4.4% consensus.. These developments hint at a potential repricing of the Bank of England’s interest rate expectations, setting the stage for a compelling struggle between two currencies predicted to be on the decline.
Technical
On the 4H chart, a reversal of the recent bullish momentum is evident in the notable red candle in the Wednesday session. However, the 25-SMA (green line) has crossed above the 50-SMA (blue line) and the 100-SMA (orange line), while the 50-SMA looks to converge with the 100-SMA, confirming the presence of buyers in the shorter term.
The Fibonacci midpoint from the peak of the descending channel breakout is now in focus at 1.2647, providing support to the struggling currency pair. However, a breakdown could shift the price below the multiple SMAs, signalling a momentum shift. The 61.8% Fibonacci golden ratio of 1.2613 could then be of importance to prevent a sustainable downturn toward lower support at 1.2583.
However, should support at 1.2647 hold, a retracement of the Wednesday selloff could occur. Support turned resistance at 1.2668 could be the first hurdle to this process before the 25-SMA holds a psychological resistance at 1.2705.
Summary
After the UK’s latest inflation miss, the GBPUSD currency pair is on the decline, looking for support at 1.2647. If this support fails, the currency pair could undergo a shift in momentum should the 50-SMA and 100-SMA fail to underpin a retracement.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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