• The British pound has fallen again during the trading session on Friday, to seeing the crucial 50-Day EMA.
• What’s even more important to me though is the fact that we are in an area that has a lot of noise and it, as we had consolidated previously.
• At this point, I can only ask the question as to whether or not this is the major dip that turns the market around, or if it is a situation where we continue to plunge.

At this point, I’m looking at the ¥190 level as a major barrier for short-sellers, and I do think that eventually we will get a little bit of a bounce. I am keeping an eye on the ¥192.50 level, because we can turn around a break above there, then I’m willing to get long again. After all, the interest rate differential between the 2 economies is wide enough to drive a truck through, and therefore you do get paid to hang on to this pair. That doesn’t necessarily mean that it has to go higher, but it certainly makes the move higher a lot less painful than a move lower.

Bank of Japan

Keep in mind that the biggest driver of where we go next is going to be the Bank of Japan, as they have intervened a few times recently, and therefore they have strengthen the Japanese yen. That being said, it doesn’t necessarily look like they have changed the trend, so I’m just simply waiting for other people to get involved in the market before start buying again. I made quite a bit of money via the swap over the last couple of months, and I plan on doing that again.

From a longer-term standpoint, the Bank of Japan can’t do much as far as interest rates are concerned, mainly due to the fact that Japan has an even worse debt problem than the United States, which is really saying something. At this point, this is a market that should continue to go higher, but a little bit of patience probably goes a long way as you will get paid to simply wait for traders to get involved. However, if we were to break down below the 189 you level, then it will be interesting to see what happens next.

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The U.S. dollar, as measured by the DXY index, was a tad softer on Monday in a context of mixed U.S. Treasury yields and thinner liquidity in the FX space, with UK markets closed for a bank holiday. Despite this, the dollar’s decline wasn’t uniform – it weakened against major currencies like the euro and the pound but strengthened against the yen.

FX MARKET PERFORMANCE

Source: TradingView

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Taking Monday’s fluctuations into consideration, the DXY index is down more than 1.4% from its April highs, although it has rebounded slightly from its recent trough established last Friday. Nevertheless, bulls have been clearly on the defensive over the past few trading sessions, notably following the Federal Reserve’s dovish tone at its last gathering and disappointing U.S. employment data.

The Fed’s intention to ease despite renewed inflation concerns, which was the takeaway from last week’s FOMC meeting, coupled with weaker-than-anticipated job creation/cooling wage pressures in April, has triggered a sharp pullback in bond yields in May, emboldening new rate cut bets for the year after they were sharply reduced late last month. These developments have evolved into a significant headwind for the U.S. currency.

Gazing ahead, the U.S. economic calendar lacks high-impact events that could spark major bouts of volatility in the upcoming days. This could allow current forex trends to consolidate for some time without wild price swings. However, the near-term outlook would need to be revised around mid-May, when the next set of U.S. CPI figures is due. This report will offer fresh insights into the current inflationary landscape, crucial for informing the Fed’s future decisions and timeline to start slashing borrowing costs.

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EUR/USD FORECAST – TECHNICAL ANALYSIS

EUR/USD moved up on Monday and made its way towards the 1.0800 handle, coming within striking distance from taking out both its 50-day and 200-day simple moving averages. Bears must ensure that prices remain under these technical indicators to stall the bullish momentum; any lapse might trigger a rally towards trendline resistance at 1.0830, followed by 1.0865, a key Fibonacci barrier.

In the event of a bearish turnaround from current levels, traders should closely watch 1.0750 and 1.0725 as critical support areas. Below these thresholds, the focus will shift to 1.0695, followed by 1.0645. A retest of the latter zone could see the pair stabilize before mounting a comeback again. However, if a breakdown occurs, the possibility of a decline towards the 1.0600 mark cannot be ruled out.

EUR/USD PRICE ACTION CHART

EUR/USD Chart Created Using TradingView

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GBP/USD FORECAST – TECHNICAL ANALYSIS

GBP/USD also advanced on Monday, recapturing its 200-day simple moving average and steadily approaching confluence resistance between 1.0610 and 1.0630 – an area that marks a convergence of the 50-day SMA with two significant trendlines. Buyers may find it challenging to breach this technical hurdle; however, a bullish breakout could spur a move towards 1.2720.

Alternatively, if the bears rouse from their slumber and steer prices beneath the 200-day SMA, support extends from 1.2515 to 1.2500. Cable needs to hold above this floor to prevent selling pressure from intensifying; failure to do so could create the right conditions for a plunge towards 1.2430. On further weakness, all eyes will be on the psychological 1.2300 level.

GBP/USD PRICE ACTION CHART

GBP/USD Chart Created Using TradingView

Australian Dollar vs US Dollar Technical Analysis

You can see that it looks like we are trying to probe the resistance barrier near the 0.6650 level early during the Monday session. That being said, the market is also going to be paying close attention to this area due to the fact that not only do we have a well-defined ceiling, but it also could lead to further US dollar weakness.

Now Australia might be a little bit of an outlier because it’s worth noting that the Aussie dollar has performed remarkably well against the greenback, while other currencies may not have. Underneath we have the 200 day EMA and the 50 day EMA both potentially offering support. And then of course we have the 0.6450 level, an area that has been important multiple times.

What I think is that the Australian dollar vs US dollar chart just simply shows how volatile the world is right now as far as finance is concerned. I don’t know that we really take off, but if we do, then I think you’ve got a situation where this market breaking above that ceiling could open up a move to 0.6850. Ultimately, the market participants out there will be paying close attention to this area. And I think Monday and Tuesday could be rather important.

That being said, the Australian landscape will be greatly influenced early Tuesday because of the interest rate decision coming out of Australia. So, this could be a little bit of a false positive more likely than not by the end of the day, Tuesday, we should have clarity as to whether we stay range-bound or if we do try to break out to the upside for something more sustainable.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

More From FXEMPIRE:

• EUR/USD’s bullish move faltered just ahead of 1.0800.
• The US Dollar traded in an inconclusive tone post-NFP.
• The focus shifted to Fed speakers and data.

The indecisive movement of the US Dollar (USD) seems to have been enough to bolster the continuation of the march north in EUR/USD at the beginning of the week. The pair, however, failed to retest or surpass the key 1.0800 barrier amidst its fourth consecutive daily advance.

This uncertain momentum of the Greenback coincided with investors’ evaluation of the recent decision by the Federal Reserve (Fed) to maintain its interest rates unchanged at 5.25%–5.50% at its May 1 event and the somewhat disheartening prints from April’s Nonfarm Payrolls (+175K).

During the Fed’s event, the Committee reiterated its openness to rate cuts while expressing concerns regarding inflation and potential disruptions to economic stability. Additionally, the central bank signalled a slowdown in the pace of balance sheet reduction, contrasting with previous warnings.

Extra comments from Chair Jerome Powell at his press conference added to the recent pressure on the Dollar, as he suggested that the next policy adjustment is unlikely to involve a rate hike.

In the longer term, weakness in the Greenback is expected to be temporary due to delayed expectations of a potential interest rate cut by the Fed later this year.

Meanwhile, US yields continued their descent, while the broader macroeconomic landscape continued to highlight the disparity in monetary policies between the Fed and other G10 central banks, notably the European Central Bank (ECB).

Recent statements from ECB board members hinted at the possibility of the ECB initiating its easing cycle in June, fueling speculation about three interest rate cuts (or 75 basis points) for the rest of the year.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, reinforce expectations for a stronger Dollar in the medium term, particularly considering the increasing probability of the ECB cutting rates well ahead of the Fed.

Given this scenario, further weakness in EUR/USD should not be ruled out in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to encounter first resistance at the May high of 1.0812 (May 3), which precedes the interim 100-day SMA of 1.0838 and the April top of 1.0885 (April 9). North of here lies the March peak of 1.0981 (March 8), followed by the weekly high of 1.0998 (January 11), all before hitting the psychological barrier of 1.1000.

Looking south, a break of the 2024 bottom of 1.0601 (April 16) might signal a return to the November 2023 low of 1.0516 (November 1), which comes before the weekly low of 1.0495 (October 13, 2023). Once this area is reached, a journey to the 2023 low of 1.0448 (October 3) is possible before reaching the round milestone of 1.0400.

The 4-hour chart shows the continuation of the upward trend, with the pair now initially aiming for 1.0812, ahead of 1.0885. Meanwhile, 1.0750 provides early support, ahead of 1.0649 and 1.0601. The relative strength index (RSI) looked stable around 61.

• EUR/USD’s bullish move faltered just ahead of 1.0800.
• The US Dollar traded in an inconclusive tone post-NFP.
• The focus shifted to Fed speakers and data.

The indecisive movement of the US Dollar (USD) seems to have been enough to bolster the continuation of the march north in EUR/USD at the beginning of the week. The pair, however, failed to retest or surpass the key 1.0800 barrier amidst its fourth consecutive daily advance.

This uncertain momentum of the Greenback coincided with investors’ evaluation of the recent decision by the Federal Reserve (Fed) to maintain its interest rates unchanged at 5.25%–5.50% at its May 1 event and the somewhat disheartening prints from April’s Nonfarm Payrolls (+175K).

During the Fed’s event, the Committee reiterated its openness to rate cuts while expressing concerns regarding inflation and potential disruptions to economic stability. Additionally, the central bank signalled a slowdown in the pace of balance sheet reduction, contrasting with previous warnings.

Extra comments from Chair Jerome Powell at his press conference added to the recent pressure on the Dollar, as he suggested that the next policy adjustment is unlikely to involve a rate hike.

In the longer term, weakness in the Greenback is expected to be temporary due to delayed expectations of a potential interest rate cut by the Fed later this year.

Meanwhile, US yields continued their descent, while the broader macroeconomic landscape continued to highlight the disparity in monetary policies between the Fed and other G10 central banks, notably the European Central Bank (ECB).

Recent statements from ECB board members hinted at the possibility of the ECB initiating its easing cycle in June, fueling speculation about three interest rate cuts (or 75 basis points) for the rest of the year.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, reinforce expectations for a stronger Dollar in the medium term, particularly considering the increasing probability of the ECB cutting rates well ahead of the Fed.

Given this scenario, further weakness in EUR/USD should not be ruled out in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to encounter first resistance at the May high of 1.0812 (May 3), which precedes the interim 100-day SMA of 1.0838 and the April top of 1.0885 (April 9). North of here lies the March peak of 1.0981 (March 8), followed by the weekly high of 1.0998 (January 11), all before hitting the psychological barrier of 1.1000.

Looking south, a break of the 2024 bottom of 1.0601 (April 16) might signal a return to the November 2023 low of 1.0516 (November 1), which comes before the weekly low of 1.0495 (October 13, 2023). Once this area is reached, a journey to the 2023 low of 1.0448 (October 3) is possible before reaching the round milestone of 1.0400.

The 4-hour chart shows the continuation of the upward trend, with the pair now initially aiming for 1.0812, ahead of 1.0885. Meanwhile, 1.0750 provides early support, ahead of 1.0649 and 1.0601. The relative strength index (RSI) looked stable around 61.

• The Japanese Yen is now being sold despite its firm rise last week after two cases of suspected Bank of Japan intervention.
• The best Forex opportunities to be long of the Japanese Yen look likely to be in the CAD/JPY and CHF/JPY crosses.

The Japanese Yen has clearly been in a downwards trend since at least mid-March, and arguably since the start of 2024.

There are no clear chart patterns or other technical formations affecting the price action now, but the Yen has made a firm decline so far today. I argue that currency crosses which make large directional movements in one direction are likely to rebound in the opposite direction over the following week, and I think this is what is happening here today in all the Yen crosses.

It is worth noting that there is a long-term bearish trend in the Yen that is going to support Yen selling moving the price lower.

The table below shows that the British Pound and the Australian Dollar have been the strongest major currencies so far today, while the Japanese Yen has been the weakest. This suggests today, may be more of a cross day, as the US Dollar is more mixed after falling last week.

The Japanese Yen has several fundamental and sentimental reasons for its recent and current weakness:

1. The Bank of Japan’s suspected interventions in favour of the Yen last week have depressed the price successfully to some extent, but markets remain sceptical that the Bank can truly win this fight. It is much easier for a central bank to weaken than strengthen its own currency.
2. Questions remain as to how rapidly the Bank of Japan will be able to truly ditch its very accommodative monetary policy, despite a recent switch to positive rates.
3. The Yen’s recent strong descents into new 34-year lows attract trend traders as Yen sellers.

Let’s now look at the major Yen currency pair and crosses.

The Yen has weakened against the US Dollar in the USD/JPY pair, although the US Dollar is not relatively strong, so the upwards movement has not been very extended.

The suspected intervention by the Bank of Japan during the earlier Asian session sent this currency pair 450 pips lower, like the 550-pip drop seen last Monday. However, the support level at ¥153.87 held and produced a bullish bounce.

This price rise ran into resistance confluent with the major round number at ¥154.00.

There will probably be better vehicles for trading the Yen short today, but if the price can get established above ¥154.02 later today, it will probably continue to rise.

We see a similar picture here in the EUR/JPY currency cross to the USD/JPY currency pair, but the situation is arguably more bearish despite the EUR being stronger than the USD, as the price remains well below the upper trend line of the descending wedge chart pattern.

There is a bullish sign – the price has gotten established above the former resistance level at ¥165.00.

There is not much sentiment around the Euro right now.

A long trade will become more attractive only once the price is trading above ¥166.36.

The situation here in the GBP/JPY cross is very similar to the technical picture in the EUR/JPY currency cross. However this is more bullish as the price action is more firmly bullish, and there is no overhead resistance except the upper trend line of the descending wedge chart pattern. This trend line is currently quite confluent with ¥194.00.

I would enter a long trade if we get two consecutive hourly closes above ¥194.00 later.

The natural next crosses to look at for the Yen are the AUD/JPY, CAD/JPY, and CHF/JPY crosses as these had the best placings of support and resistance levels to produce relatively unobstructed moves higher.

In the AUD/JPY cross, the price is reaching the key resistance level at ¥102.00 so traders looking for a long trade entry might want to wait for two consecutive higher hourly closes above that level before entering any new trade.

In the CAD/JPY cross, the price seems to be running into new resistance at ¥112.50 so traders looking for a long trade entry might want to wait for two consecutive higher hourly closes above that level before entering any new trade.

In the CHF/JPY cross, the price seems to be running into new resistance at ¥170.00 so traders looking for a long trade entry might want to wait for two consecutive higher hourly closes above that and the next resistance level at ¥170.63 before entering any new trade.

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• The Bank of England may this week provide a clearer signal on whether it plans to cut interest rates this summer, just as investors bet on delayed easing expectations.
• Ahead of that, the GBP/USD currency pair rebounded to the resistance level 1.2633 last Friday on the back of all expectations of US employment figures and settled around 1.2548 at the start of trading this week.

Before next Thursday’s decision, Governor Andrew Bailey distanced Britain from US consumer price pressures, pointing to “strong evidence” that UK inflation is easing. Widely, economists are expected to keep the Bank of England’s interest rates at their highest level in 16 years at 5.25%. Investors will be watching closely for clues as to whether policymakers see June or August as an opportunity to start cutting borrowing costs.

Overall, stronger-than-expected inflation data on both sides of the Atlantic has led traders to postpone their bets on a Bank of England rate cut until September, with only one fully priced move this year. However, a cautious shift in tone from Bailey and Deputy Governor Dave Ramsden in April has prompted some economists to believe that the timing of Bank of England cuts could be closer to the European Central Bank. This is widely expected to move in June – than the US Federal Reserve, whose chairman Jerome Powell has avoided providing a timetable for US easing.

Meanwhile, Bailey expects UK inflation to fall closer to his 2% target in the upcoming April data, although some on the nine-member Monetary Policy Committee remain concerned about core price pressures. On Friday, The BOE’s decision will be followed by GDP data that is expected to show the UK economy emerged from a shallow recession in the first quarter. Moreover, Economists expect the figures to show output growth of 0.4% after two consecutive quarterly declines last year.

On the other hand, the US economic data calendar is light… as the University of Michigan will release on Friday its preliminary survey of US consumer confidence for the month of May. Confidence is expected to change slightly as Americans take stock of rising prices, rising interest rates and a moderate labor market. The day before, the government will release weekly US unemployment claims numbers. Claims for unemployment benefits remain near historically low levels.

Technical forecasts for the GBP/USD pair today:

According to the performance on the daily chart, the price of the GBP/USD pair is still in the early stages of breaking the overall downward trend and will not succeed in doing so without the bulls moving towards the resistance levels at 1.2775 and 1.2900, respectively. Currently, a return to stability below the support level of 1.2500 may encourage bears to control their direction for a period. Technically, we expect the GBP/USD pair to move in narrow ranges until a reaction to the Bank of England’s announcement next Thursday. Additionally, the currency pair will be influenced by the extent of investors’ risk appetite as well as the performance of global financial markets.

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• The Japanese yen was in the spotlight last week as concerns about its future continued.
• According to forex trading platforms, the USD/JPY currency pair initially rose to a high above resistance at 160.17 last Monday before quickly retreating to 152.93 as the Bank of Japan pumped in over $33 billion to stem the collapse.

As a result, the Japanese yen was the worst-performing currency in the developed world, collapsing by over 53% from its March 2020 peak. Looking back, the pair has fallen by over 105% since November 2011. From the same perspective, the Turkish lira has become almost worthless, becoming one of the worst-performing currencies in emerging markets. Almost, as it became one of the worst performing currencies in emerging markets. It has collapsed more than 2,200% from its 2011 high.

As such, there are concerns about whether the Japanese yen will continue to collapse like the Turkish lira. To understand this, we must explain why the Japanese yen has collapsed so severely in the past few years. First, Japan is one of the world’s largest importers because it does not have many natural resources. Accordingly, Sogoshōsha companies, such as Marubeni, Mitsubishi, and Itochu, took advantage of this trend by obtaining natural resources and shipping them to Japan. As a result, the decline of the Japanese yen sparked inflation in the country. The results of the economic calendar data showed that the headline inflation rate rose to more than 2% in March. Although this is a low number compared to other countries, it is a large number for a country that is not accustomed to price changes.

Also, Japan is seeing wages rise for the first time in years. In March, the country’s largest union approved the biggest wage growth in 33 years.

The Bank of Japan has been reluctant to raise interest rates. In other countries, rising inflation is usually met with rising interest rates. In the United States and other European countries, interest rates have jumped to their highest levels in over two decades. On the other hand, the Bank of Japan has been reluctant to raise interest rates. In fact, it made headlines when it raised rates by 10 basis points in March after exiting the negative interest rate scenario.

At the same time, the Bank of Japan fears raising interest rates because this will push the country’s debt repayment costs to rise sharply. This is because Japan is one of the most indebted countries in the world with a total public debt of more than $9.2 trillion. Obviously, this is a large number considering that its economy has a GDP of $4.2 trillion and is not growing. Moreover, the Bank of Japan itself has assets worth more than $8 trillion.

As such, a small increase in interest rates will lead to more debt repayments and budget deficits. Fitch estimates that Japan’s deficit will widen to 4.9% of GDP in 2023. Consequently, Japan will find it difficult to get out of the current hole, given that it is also undergoing severe demographic changes with a decline in its population. Accordingly, the moral of all this is that the Japanese yen will continue to fall against the US dollar. As I warned before, any interventions will be short-term, as we saw in 2022. Besides, there are signs that the Federal Reserve will not cut US interest rates this year.

Therefore, amid these challenges, there are questions about whether the Japanese yen will become the next Turkish lira. The two currencies have been in a sharp downtrend for a long time. As with the Japanese yen, the Turkish lira collapsed due to the actions of the Central Bank of the Republic of Turkey (CBRT), which adopted an unconventional monetary policy. For a long time, the bank has always tended to cut interest rates even when inflation jumps.

The point of all this is that most people and companies have lost confidence in the Turkish lira. Correspondingly, they avoided buying the currency even after the Turkish Central Bank raised interest rates to 50%. Therefore, it is still too early to predict whether the collapsed Japanese yen sell-off will continue in the long term. Respectively, we tend to believe that will happen. Japan’s only hope is to have huge foreign exchange reserves. Japan holds about $1.15 trillion in US debt, which it can use to bail out the yen.

The other short-term hope for the Bank of Japan is a sharp decline in inflation, which would lead to a cut in interest rates by the Federal Reserve. Such a move would narrow the gap in carry trade between the US dollar and the Japanese yen.

USD/JPY Technical Analysis and Expectations Today:

The price of the US dollar against the Japanese yen “USD/JPY” has now declined, trading several levels below the 100-hour moving average line. As a result, the currency pair is about to fall to the oversold levels of the 14-hour RSI. In the near term.

According to the performance on the hourly chart, it appears that the USD/JPY currency pair is trading within a sharp bearish channel. Also, the 14-hour RSI appears to be supporting the downside as it approaches oversold levels. Therefore, the bears will target extended declines at around 151.88 or lower at the 151.14 support. On the other hand, the bulls will target bounce profits at around 153.19 or higher at the 153.73 resistance.

In the long term, and according to the performance on the daily chart, the USD/JPY currency pair is trading within an ascending channel. However, the 14-day RSI has recently pulled back to recover from overbought levels. Therefore, the bears will target extended pullbacks at around 146.64 or lower at the 140.67 support. On the other hand, the bulls will be looking to pounce on profits at around 156.16 or higher at the 160.36 resistance.

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• The Euro shot higher during the trading session on Friday, but we turned around to show signs of hesitation.
• After all, we pierced the 200-day EMA only to turn around and drop about 60 pips.
• With this, I think you’ve got a situation where traders continue to look at this market as one that, although bullish, in the short term, the reality is longer term, we’re very much in a bit of a range.

Keep in mind that the European Central Bank is likely to cut rates sooner than the Federal Reserve, so it makes sense that we have given back some of these gains. The 1.07 level underneath should be significant support, and if we were to break down below there, then we could go looking to the 1.06 level. On the other hand, if we were to take out the top of the candlestick for the day on Friday, it could open up a move to 1.09, possibly even 1.10 after that, although it could take some time to get anywhere at this point in time.

Interest Rate Differential

The interest rate differential will probably favor the dollar more than anything else over the next year or two, but that doesn’t necessarily mean that central banks in both regions won’t be cutting rates eventually. At this point, it looks as if the EUR/USD market is likely to continue to see the idea of an interest rate cut in December as very possible for the Fed. But the ECB is likely to cut rates sometime later this summer. With that being said, I think we still favor the dollar over the Euro, but I don’t necessarily think that we have a huge move coming one way or the other.

In fact, I suspect that we will probably spend most of the year trading in a somewhat range bound market in not only this pair but most other major currency pairs. This is the reaction to the fact that so many central banks around the world are not sure as to what they will eventually do.

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GBP/JPY Forecast Video for 22.05.23

British Pound vs Japanese Yen Technical Analysis

The British pound initially pulled back during the day on Friday, but just as we had seen on Thursday, buyers came back to push the market higher. Ultimately, this is a situation where the British pound is going to continue to be much stronger than the Japanese yen as the Bank of Japan has shown itself to stick to its guns when it comes to quantitative easing. If that’s going to end up being the case, the market is likely to continue to see a run toward the ¥175 level, perhaps even higher than that.

While the British are going to continue to fight inflation, the Japanese are clearly staying loose with their monetary policy as the Bank of Japan continues to reiterate its plans to keep interest rates on the 10 year JGB down to 50 basis points or lower. In order to do this, they will be printing more yen, flooding the market with supply. Alternatively, while the British are fighting inflation, they are tightening monetary policies of the interest rate differential alone make sure that this pair goes higher over the longer term.

On pullbacks, there should be plenty of buyers, just as we have seen over the last couple of trading sessions, and I think that continues to be the case for a while. The 50-Day EMA is near the crucial ¥167.50 level, an area that should continue to be very important. Given enough time, this is a market that should continue to see plenty of value hunters every time the British pound becomes just a bit “cheaper” than it was before. The Japanese yen is destined to continue to lose strength, because you can either tighten monetary policy to fight inflation or not. There is no middle ground. You either tighten monetary policy to strengthen the currency, and fight inflation, or you lose strength in your currency. This is the conundrum that the Japanese find themselves in after years and years of quantitative easing. Given enough time, we could see this pair back above the ¥200 level.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

More From FXEMPIRE:

• The Pound Sterling reached a three-week top against the Greenback.
• GBP/USD closed its second consecutive week of gains.
• Investors’ attention now shifts to the BoE gathering and the preliminary UK GBP data for the first quarter.

The British Pound (GBP) extended its march north against the US Dollar (USD) throughout the week, motivating GBP/USD to break above the 1.2600 figure for the first time since mid-April.

Meanwhile, the Pound Sterling experienced continued buying pressure against the US Dollar following an auspicious start to the week. This renewed upside bias coincided with diminished demand for the US Dollar, which was exacerbated in response to the dovish tilt (or at least not as hawkish as expected) by the Federal Reserve (Fed) at its meeting on Wednesday as well as by Chairman Jerome Powell at his subsequent press conference.

Absent important data releases in the UK economic calendar this week, the focal point of the past five days was the above-mentioned Fed’s event and Nonfarm Payrolls (NFP) on Friday, which showed the US economy added fewer jobs than previously anticipated (+175K) during April.

Also adding to the dominating appetite for the risk-linked galaxy, and hence, underpinning the bullish momentum around the British pound and its peers, geopolitical concerns, mainly in the Middle East, appeared to have entered a wait-and-see mode amidst some gradual progress towards a potential ceasefire between the conflicting parties.

Moving forward, the BoE and key UK GDP data

The upcoming week should be quite an interesting one for the quid, as the BoE meets on Thursday, and it is widely expected that the central bank will keep interest rate unchanged. Speculation among investors anticipates the first rate cut by the “Old Lady” in August or September, while another rate reduction appears fully priced in for December. On Friday, UK the Gross Domestic Product (GDP) release for the first quarter will also be on the traders’ radar, as it could show that the UK economy overcame the shallow recession it sank into during the second half of 2023. 

GBP/USD: Technical Outlook

The so-far May top at 1.2634 (May 3) is the upcoming resistance level for GBP/USD. A breakthrough above this level could prompt a revisit of the April peak at 1.2709 (April 9), likely followed by the weekly high of 1.2803 (March 21), and even extend to the 2024 top at 1.2893 (March 8). Further up, the pair could meet the weekly peak of 1.2995 (July 27, 2023), just below the psychological 1.3000 yardstick.

Conversely, initial support is found at the 2024 low of 1.2299 (April 22), followed by the weekly low of 1.2187 (November 10), and preceding the October 2023 bottom of 1.2037, and the crucial contention zone of 1.2000. Observing the daily chart, the Relative Strength Index (RSI) climbed beyond the 55 level.