Fundamental Overview
The USD continues to be under pressure as the positive tariffs talks on Monday eased the trade war fears and weighed on the greenback. In fact, trade war fears have been the only thing keeping the bid under the USD as interest rate expectations and economic data took the second place in importance.
As a reminder, the repricing in rate cuts expectations reached the peak after the last US NFP report and then the market returned into a dovish pricing following the benign US inflation data (the market is still pricing roughly two rate cuts for 2025).
Today, we get the January NFP and it could be another good report. That might lead to a short-term relief rally for the US Dollar but as we've seen with the US Job Openings data, the labour market continues to normalise and it's not a source of inflationary pressures anymore. So, the potential US Dollar rally might be faded.
That doesn't mean that the Fed will cut more than the two times projected for this year, but it also doesn't call for a more hawkish repricing yet. So, the path of least resistance for the US Dollar (barring negative tariffs outcomes) might remain to the downside as a more dovish path going forward looks more probable.
On the GBP side, the BoE yesterday cut interest rates by 25 bps as expected and we got a more dovish than expected vote split with the known hawk member Mann even voting for a 50 bps cut.
The pound sold off initially but then started to fade the weakness as the market focused on the word “careful” that was added in the “gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate” line.
BoE’s Bailey then doubled down on that saying that it was deliberate because of the uncertainty they are facing, so that brushed aside the more dovish expectations for the rates path triggered by the vote split.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD is trading near the key resistance zone around the 1.25 handle. This is where we can expect the sellers to step in with a defined risk above the resistance to position for a drop into the 1.20 handle. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the 1.28 handle next.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have an upward trendline defining the bullish momentum. If we get a pullback into the trendline, the buyers will likely lean on the trendline to position for a break above the resistance. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into new lows.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we are basically in the middle of nowhere. The only notable support could be the higher low around the 1.2420 level where the buyers will look for a bounce, while the sellers will look for a break.
From a risk management perspective, it would be much better to wait for the US NFP report as any technical setup can be invalidated in a blink of an eye when the data gets released. The red lines define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the US NFP report.
This article was written by Giuseppe Dellamotta at www.forexlive.com. Read More Details
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