Basic overview
The US dollar received support from strong US consumer confidence data which led to a strong rise in long-term Treasury yields. However, the report showed that the labor market remains resilient which is good news for growth and not necessarily bad news for inflation. The dollar also benefited from risk-off sentiment, which appears to be driven more by end-of-month flows rather than a fundamental driver.
On the other hand, the pound was supported by a slightly tighter repricing in interest rate expectations following last week’s UK CPI report which saw the chances of a June rate cut evaporate. If we return to risk sentiment, the dollar may start to lose ground against the pound again.
Technical Analysis of GBPUSD – Daily Time Frame
On the daily chart, we can see that GBPUSD eventually managed to reach the 1.28 level. The pair has been declining steadily since then as risk-off sentiment in the markets has strengthened the US dollar. If the correction extends further, we can expect buyers to rely on the trend line around 1.2630 to prepare for a rally to new highs with a good risk to reward setup.
On the other hand, sellers will want to see the price break down to invalidate the bullish setup and put in a bearish position to the 1.25 handle next.
Technical analysis of GBP/USD – 4-hour time frame
On the 4-hour chart, we can see that we have the meeting area of the previous swing high and the 50.0% Fibonacci retracement level around the trend line. This should strengthen support technically and give buyers more conviction for a bounce. A break below this support would give sellers more control and increase downward momentum.
Technical analysis of GBPUSD – 1 hour time frame
On the 1-hour chart, we can see that we have a good resistance at the level of 1.2710 where we can find the intersection of the bearish secondary trend line and the 38.2% Fibonacci retracement level.
This is where we can expect sellers to step in with specific risks above the trend line in order to prepare for a decline to the main trend line with a good risk to reward setup. On the other hand, buyers will want to see the price move higher to invalidate the bearish setup and start targeting new highs.
Upcoming stimuli
Today we will see the latest US unemployment claims numbers, while we conclude the week tomorrow with the US Personal Consumption Expenditures report.