The recent strong labor report and the Fed's conservative stance around lowering rates, have moderated aggressive market bets, working against the pair. As a result, GBP/USD closed last week below the EMA200 (black line) and into the daily Ichimoku cloud. This creates risk for sub-38.2% Fibonacci fall (1.2525-1.2499), but strong catalyst would be needed for that, as the immediate downside appears well-protected.
On the other hand, the Bank of England hinted at peak rates, but called for restrictive stance, did not embrace cuts and has more work do on inflation than the Fed. GBP/USD defended the aforementioned key 38.2% Fibonacci and this provides the opportunity to reclaim 1.2828, but does not inspire much confidence at this point for sustained strength.
The pair lacks firm direction over the last couple of months, as markets contemplate the rate path from both central banks. The Fed pushed bank against any imminent change, but has clearly pointed to cuts ahead and the Bank of England is further form a pivot from its US counterpart. Investors now turn to this week slew of data that could determine the pair's trajectory and rate prospects, with CPI inflation standing out.
Price pressures have moderated substantially in the US and Friday's revision confirmed the disinflationary trend, but recent data have also shown persistence. UK inflation has decelerated sharply over the past several months, but the last print showed an uptick and at 4%, it remains far from the central bank's 2% target.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.