GBPUSD Technical Analysis – Awaiting the US CPI release

Fundamental Overview

The USD has been under some pressure in the last couple of weeks as the weaker US data and the selloff in the US stock market increased the expectations for more easing by year-end with the market now fully pricing in three rate cuts.

Today we get the US CPI report and it could be a tricky one for the US Dollar. Logically one would expect more weakness for the greenback in case we get a soft report, but we might even see a counterintuitive short-term appreciation on a relief rally in equities.

A hot report, on the other hand, might give the greenback a boost against the major currencies on risk-off flows although even here we could see the US Dollar depreciating amid falling long term Treasury yields with the market expecting the Fed holding off from cutting even in the face of more economic slowdown and eventually leading to more aggressive cuts.

On the GBP side, the recent news on European defence spending boosted the pound as well given that the EU is UK’s largest trading partner. On the domestic front, the data continues to put the BoE in an uncomfortable position given the high wage growth and sticky inflation. The market expects just two rate cuts by the end of the year.

GBPUSD Technical Analysis – Daily Timeframe

On the daily chart, we can see that GBPUSD is trading right in the middle of two key levels. From a risk management perspective, the buyers will have a better risk to reward setup around the support zone around the 1.28 handle. The sellers, on the other hand, will look for a break below the support to increase the bearish bets into the major trendline around the 1.26 handle.

GBPUSD Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we’ve been seeing some consolidation ahead of the US CPI release. If we get a spike into the 1.3046 level, we can expect the sellers to step in with a defined risk above the level to position for a drop into the 1.28 handle next. The buyers, on the other hand, will want to see the price breaking higher to extend the rally into new highs.

GBPUSD Technical Analysis – 1 hour Timeframe

On the 1 hour chart, there’s not much we can add here as we have a rangebound price action and we have the US CPI report coming out shortly. From a risk management perspective, it would be better to wait for the release before taking new positions. The red lines define the average daily range for today.

Upcoming Catalysts

Today we have the US CPI report. Tomorrow, we get the US PPI data and the US Jobless Claims figures. On Friday, we conclude the week with the UK GDP and the University of Michigan Consumer Sentiment report.