Fundamental
Overview
The USD rallied across the
board last week after a slate of strong US data. The focus was mainly on Jobless Claims which beat expectations by a big
margin with Initial Claims falling to the lowest level since July and
Continuing Claims improving further. This triggered a hawkish repricing in
interest rates expectations since the Fed started cutting rates solely due to
weaker labour market data.
This means that if we
continue to get stronger labour market data, the Fed could start turning more
hawkish again and we might not get another cut in October, or more probably in
December. Therefore, there’s still plenty of room for the US dollar to appreciate
in case of strong data as the market’s pricing remains too dovish. The Fed
projected 75 bps of easing by the end of 2026, while the market is still
pricing 104 bps.
The greenback erased all
the gains triggered by last week’s data in the meantime as we are likely
experiencing a pullback after a very strong rally. Other possible reasons
include the government shutdown fears and quarter-end flows.
On the GBP side, we haven’t
got any meaningful change in the fundamentals in the meantime. The BoE left
interest rates unchanged at the last meeting but slowed the pace of QT. The
forward guidance was mostly the same with the focus being more on the inflation
side now. The UK continues to have a serious inflation problem with high core
CPI, high wages and rising consumer inflation expectations. The market is
pricing just 5 bps of easing by year-end and 36 bps by the end of 2026.
GBPUSD
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that GBPUSD bounced on the key swing level at 1.3334 with the buyers now
targeting a rally into the 1.3588 level. That’s where we can expect the sellers
to step in with a defined risk above the level to position for a drop back into
the 1.3334 level. In case, we reverse course earlier and the price breaks below
the 1.3334 level, we can expect the sellers to increase the bearish bets into
the 1.3140 level next.
GBPUSD Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that we had a downward trendline defining the bearish momentum that
got breached. The buyers increased the bullish bets into the 1.3588 level as a
result, while the sellers retrenched. There’s not much else we can glean from
this timeframe, so we need to zoom in to see some more details.
GBPUSD Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have a minor support around the 1.3410 level. If the price gets
there, we can expect the buyers to step in with a defined risk below the level
to keep pushing into new highs. The sellers, on the other hand, will look for a
break lower to pile in for a drop back into the 1.3334 level next. The red
lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we get the US Job Openings data and the US Consumer
Confidence report. On Wednesday, we have the US ADP and the US ISM
Manufacturing PMI. On Thursday, we get the latest US Jobless Claims figures. On
Friday, we conclude the week with the US NFP report and the US ISM Services
PMI. Keep also an eye on Fed speakers.
This article was written by Giuseppe Dellamotta at investinglive.com.