GBPUSD is riding a wave of optimism after positive UK PMIs reignited hopes of a sustained economic rebound. The February data revealed faster-than-expected growth in both the manufacturing and service sectors, with the latter enjoying its best performance since last May. This robust expansion, coupled with rising business optimism, suggests the UK’s recessionary woes might be fading.
However, the Bank of England’s (BoE) cautious stance on interest rates throws a curveball. While Governor Andrew Bailey acknowledged the potential end of the recession, concerns about inflation remain high. Input price inflation reached its peak in August 2023, driven by rising wages in the service sector. This could prompt the BoE to delay rate cuts despite market expectations of a June reduction.
Adding complexity is the global market sentiment. The US dollar’s recent decline, fuelled by optimism across asset classes, further supports the GBPUSD rally. However, the Fed’s minutes released on Wednesday hinted at potential concerns about premature rate cuts, keeping the dollar afloat.
Technical Analysis:
On the 4-hour chart, the currency pair is currently at $1.26702, hovering near the ascending channel’s resistance. The price action trades well above the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), indicating a bullish trend. The upward-sloping RSI (64.15) comfortably sits above 50.00, suggesting bullish momentum.
Short-term trading opportunities could arise towards the support at the 50.00% Fibonacci retracement level (1.26522). A break below the 1.26522 level would likely bring the 38.20% Fibonacci retracement level (1.26204) and 23.60% Fibonacci retracement level (1.25814) into play in the short term.
However, short-term trading opportunities could exist towards the resistance level at the 78.60% Fibonacci retracement level (1.27284) should the price action sustain a push above the 61.80% Fibonacci retracement level. A break above the initial resistance could confirm the bullish momentum, likely bringing the 1.27582 and 1.27856 resistance levels into play.
Summary
The GBPUSD pair is riding a bullish wave on the back of strong UK PMI data and a cautious BoE outlook. However, concerns about inflation and broader market uncertainties create headwinds. Technically, the pair faces resistance near $1.27 but enjoys support from key moving averages.
Sources: TradingView, Trading Economics, Dow Jones Newswire, Reuters, S&P Global.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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