On Thursday, the Bank of England reported another 25bps interest rate hike, pushing rates up to 5.25% in a fight against stubbornly high inflation. While the currency pair initially trickled down, it found its footing ahead of today’s highly anticipated Non-Farm Payroll (NFP) release.
While the market was highly expecting the 25bps hike, there was still a slight chance of a more aggressive 50bps, which was immediately priced out in the hours following the release, which forced the currency pair down. However, the pound found support to reverse the initial drop, but caution remains as the door to additional hikes stays open. Analysts argue that pressures on economic growth and employment could overshadow inflationary concerns if the central bank remains restrictive, which could pave a difficult path ahead for the BoE. In the Friday session, the NFP will take the spotlight, as the greenback could react to a potential repricing of interest rate expectations on a tight labour market if the numbers come in strong.
Technical
On the 4H chart, a breakout occurred at the descending channel, with the dynamic resistance experiencing a retest to confirm the sustainability of the break. Resistance at 1.2750 (R1) provides a challenging hurdle to the upside, especially leading up to the NFP report.
Therefore, a tight range can be expected in the early sessions, with the daily pivot point at 1.2690, a potential level of support if dynamic resistance fails. If the greenback finds strength in the labour data, a breakdown to support 1.2643 is possible, continuing the trend within the channel toward 1.2598 and 1.2541.
However, if the breakout sustains, a breach of resistance at R1 opens the path toward resistance at 1.2803 and 1.2849. In the longer term, a trend reversal of such nature could bring higher resistance at 1.2879 and 1.2905 into play.
Summary
The GBPUSD currency pair has found support after an initial fumble following yesterday’s interest rate decision. Lower trade volumes are expected leading up to the NFP report later today, where a soft report could entice a break above 1.2750. However, a strong report could trigger a continuation of the descending channel through the daily pivot point at 1.2690.
Sources: Koyfin, Tradingview, Reuters
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