• The recent gains in the GBP/USD price have been capped at the 1.2845 resistance level. As bulls lose further momentum, the GBP/USD price has settled lower around the 1.2785 level at the time of writing.
• According to reliable trading platforms, the GBP/USD price has found support from the positive outcome of the parliamentary elections in Britain, which heralded a new political era for the economy.
• Also, traders are expecting the Labor Party to follow through on its election promises to support the domestic economy, although this could also mean increased pressure on the Bank of England to cut interest rates soon.

If this is the case, the GBP/USD price could continue to retreat from its highs amid expectations of a BoE rate cut in August, especially in light of the extent of the US central bank’s stubbornness in easing. Overall, Fed Chairman Powell’s speech to the Senate and Congress this week could provide fresh insights into their policy timeline, although the release of US CPI data later in the day could ultimately decide whether a September cut is likely.

According to the economic calendar, strong US CPI data could lead to further rate cuts, leading to further gains for the dollar across the board, while weak inflation figures could lead to a downside bias.

According to e-trading books, financial markets continue to monitor European and US political developments, with the pound providing net support on hopes of UK stability. According to trading, the pound to dollar (GBP/USD) exchange rate has gained a net gain to 1.2840 and is approaching a 4-month high, with the pound to euro (GBP/EUR) exchange rate rising to just below 1.1850.

There was a major surprise in the French general election, with tactical voting having a significant impact, with the left-wing NUPES becoming the largest party, centrist Macron in second place, and the RN pushed into third. According to UBS analyst Paul Donovan, “The unexpected result highlights that politics is becoming more important to market, but opinion polls are becoming less reliable as a guide to the outcome.”

Deutsche Bank commented, “The NPF has the most fiscally aggressive programme in terms of spending and taxation, and the market will be sceptical that the prospect of them in government now or later will lead to a higher deficit with associated concerns about debt sustainability and tense relations with Europe.” Added, “They have been talking about wealth taxes and higher corporate taxes that will not be market friendly.”

ING added, “From a forex perspective, there are remaining risks for the euro going forward, and we still see the common currency as a potential laggard in the G10 area.” It added in this context; “We see some downside risks for GBP/USD this week given the lingering political risks in the EU.” In contrast, the UK Labor Party will retain a dominant majority when the House of Commons returns on Tuesday. MUFG Bank commented on the GBP outlook. Ended, “We view political stability as a positive and do not assume any radical or imminent shift in fiscal policy.”

Technical forecasts for the GBP/USD pair today:

The GBP/USD pair appears to be forming a new range on the four-hour chart, testing the June highs at the key psychological level of 1.2800. technically, holding as resistance could take the pair back to the support range around the minor psychological level of 1.2650. At the same time, the 100 SMA remains below the 200 SMA to suggest that the stronger trend is to the downside or that the ceiling is likely to hold rather than break. However, the price is moving above both simple moving averages to suggest bullish momentum. Also, these moving averages could hold support around the 1.2700 area.

Meanwhile, Stochastic is heading lower after spending some time in overbought territory, suggesting that sellers are finally taking control while exhausted buyers take a breather. At the same time, the RSI is also moving lower, so GBPUSD could follow suit while bearish pressure is present. Ultimately, both oscillators have a lot of room to cover before reaching oversold territory to reflect exhaustion among sellers.

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• EUR/USD traded with a mild bid bias around 1.0820.
• The Greenback navigated a vacillating session ahead of the US CPI.
• There was no news from Powell’s second testimony.

The US Dollar (USD) alternated gains with losses on Wednesday, prompting the USD Index (DXY) to end the session barely changed from the previous day’s closing levels.

This irresolute price action in the Greenback motivated EUR/USD to also hover around the 1.0820 region, up marginally for the day, as investors digested the second Congressional testimony by Chair Jerome Powell before Congress.

While Powell’s message largely matched his previous comments, he suggested that he was not yet ready to conclude that inflation was sustainably decreasing to 2%, though he expressed “some confidence” that it was heading in that direction.

Following Powell’s testimony, the macroeconomic environment remained relatively stable on both sides of the Atlantic. That is, while the European Central Bank (ECB) is contemplating further rate cuts beyond the summer, with market expectations suggesting two additional cuts by the end of the year, there is ongoing debate among investors about whether the Fed will implement one or two rate cuts this year, despite the Fed’s current projection of a single cut, likely in December.

According to the CME Group’s FedWatch Tool, there is approximately a 74% chance of interest rate cuts in September, rising to nearly 96% by December.

The ECB’s rate cut in June, combined with the Fed’s decision to maintain rates, has widened the policy divergence between the two central banks. This divergence could potentially lead to further weakening of EUR/USD in the short term.

However, the prospects of economic recovery in the Eurozone, along with signs of cooling in some key US economic indicators, may mitigate this disparity and occasionally support the pair in the near future.

Moving forward, market participants should closely follow the release of US inflation figures tracked by the CPI on Thursday, as those readings could impact on the timing of the interest rate cut by the Fed.

EUR/USD daily chart

EUR/USD short-term technical outlook

EUR/USD is expected to meet its initial up-barrier at the July peak of 1.0845 (July 8), followed by the weekly high of 1.0852 (June 12) and the June top of 1.0916 (June 4). If the pair breaks above this level, it might bring the March peak of 1.0981 (March 8) back into focus, followed by the psychological 1.1000 mark.

If bears regain the upper hand, spot may approach the 200-day SMA at 1.0800 before falling to a low of 1.0666 on June 26. From here, the May low of 1.0649 (May 1) leads to the 2024 bottom of 1.0601 (April 16).

Looking at the big picture, it appears that additional gains are on the way if the important 200-day SMA is consistently surpassed.

So far, the 4-hour chart shows some gradual recovery. The 200-SMA at 1.0783 provides the initial contention, followed by the 55-SMA at 1.0781 and finally 1.0709. On the upside, the initial obstacle is at 1.0845, followed by 1.0852 and 1.0902. The Relative Strength Index (RSI) has decreased to about 53.

• EUR/USD traded with a mild bid bias around 1.0820.
• The Greenback navigated a vacillating session ahead of the US CPI.
• There was no news from Powell’s second testimony.

The US Dollar (USD) alternated gains with losses on Wednesday, prompting the USD Index (DXY) to end the session barely changed from the previous day’s closing levels.

This irresolute price action in the Greenback motivated EUR/USD to also hover around the 1.0820 region, up marginally for the day, as investors digested the second Congressional testimony by Chair Jerome Powell before Congress.

While Powell’s message largely matched his previous comments, he suggested that he was not yet ready to conclude that inflation was sustainably decreasing to 2%, though he expressed “some confidence” that it was heading in that direction.

Following Powell’s testimony, the macroeconomic environment remained relatively stable on both sides of the Atlantic. That is, while the European Central Bank (ECB) is contemplating further rate cuts beyond the summer, with market expectations suggesting two additional cuts by the end of the year, there is ongoing debate among investors about whether the Fed will implement one or two rate cuts this year, despite the Fed’s current projection of a single cut, likely in December.

According to the CME Group’s FedWatch Tool, there is approximately a 74% chance of interest rate cuts in September, rising to nearly 96% by December.

The ECB’s rate cut in June, combined with the Fed’s decision to maintain rates, has widened the policy divergence between the two central banks. This divergence could potentially lead to further weakening of EUR/USD in the short term.

However, the prospects of economic recovery in the Eurozone, along with signs of cooling in some key US economic indicators, may mitigate this disparity and occasionally support the pair in the near future.

Moving forward, market participants should closely follow the release of US inflation figures tracked by the CPI on Thursday, as those readings could impact on the timing of the interest rate cut by the Fed.

EUR/USD daily chart

EUR/USD short-term technical outlook

EUR/USD is expected to meet its initial up-barrier at the July peak of 1.0845 (July 8), followed by the weekly high of 1.0852 (June 12) and the June top of 1.0916 (June 4). If the pair breaks above this level, it might bring the March peak of 1.0981 (March 8) back into focus, followed by the psychological 1.1000 mark.

If bears regain the upper hand, spot may approach the 200-day SMA at 1.0800 before falling to a low of 1.0666 on June 26. From here, the May low of 1.0649 (May 1) leads to the 2024 bottom of 1.0601 (April 16).

Looking at the big picture, it appears that additional gains are on the way if the important 200-day SMA is consistently surpassed.

So far, the 4-hour chart shows some gradual recovery. The 200-SMA at 1.0783 provides the initial contention, followed by the 55-SMA at 1.0781 and finally 1.0709. On the upside, the initial obstacle is at 1.0845, followed by 1.0852 and 1.0902. The Relative Strength Index (RSI) has decreased to about 53.

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