GBP/USD Rebounds Swiftly From Daily Low, Edges Above 1.29000s After Fresh Round Of Weak US Data
- GBP/USD cross rebounds from daily low and pushes above 1.29000s
- A slew of weak US Macroeconomic data undermines the safe-haven greenback and caps the GBP/USD against further downtick
- Bets for more rate hikes by the BOE underpin the Cable
- A slew of Key UK and US data is set to be released later today, data to provide the directional impetus for GBP/USD pair
GBP/USD cross witnessed fresh demand during the second part of the Asian session after attracting some buying from the vicinity of the 1.24848 level/daily low to rally above 1.29000s and recover some of its earlier losses. The pair looks set to maintain its offered tone heading into the European session amid fresh USD supply.
Another round of weak economic data reinforced investor bets that the Federal Reserve is nearly done with its tightening cycle, even as other central banks still raise interest rates to overcome persistently high inflation. Data on Tuesday showed the number of job openings in the United States fell by 632,000 to 9.9 million in February 2023, the lowest level since May 2021 and below market expectations of 10.4 million, signalling the labour market might have started cooling. This, in turn, was seen as a key factor undermining the safe-haven greenback as the numbers indicated that rate hikes might be nearing an end.
Commenting on the jobs report, "The main trigger was the JOLTS data, which is starting to point to labor market moderating. So we have this kind of grind lower in the dollar and we're also looking at yields," said Vassili Serebriakov, FX strategist at UBS in New York. The weak Job numbers came on the back heel of another disappointing data released last Friday that showed factory activities in the US had fallen for a fifth straight month due to rising interest rates and growing recession fears that were starting to weigh on businesses.
That said, Fed Fund Futures traders on Wednesday saw pricing in a roughly even chance of a 25-bp rate hike in May, with the rest of the odds tilted toward a pause from the Fed. On Monday, the probability of a 25-bp hike next month was more than 40%. Further undermining the greenback, the prevailing risk-on mood - as depicted by a generally positive tone around the equity markets - is seen weighing traditional safe-haven assets, including the greenback. Apart from this, the prospects for additional interest rate hikes by the Bank of England (BoE) underpin the British Pound and help cap the GBP/USD pair against further downtick.
In a speech last Thursday at the London School of Economics, Bank of England Governor Andrew Bailey commented about the bank's monetary policy," We have to be very alert to any signs of persistent inflationary inflation pressures. If they become evident, further monetary tightening would be required. With this in mind, the MPC's response will be firmly anchored in the emerging evidence". Additionally, the final UK GDP print released last Friday showed the UK economy expanded slightly by 0.1 percent on quarter in the final three months of 2022, revised from a first estimate of no growth and following a 0.1 percent contraction in the previous period.
As we advance, investors look forward to the UK docket featuring the release of the Composite and Services PMI data for March, seen both unchanged from the previous month. Investors will look further for cues from the release of the US ADP Nonfarm Employment Change data for March, which was seen lower at 200K, down from 242K the previous month. Additionally, investors will look for directional impetus from the release of the US ISM Non-Manufacturing PMI data for March, seen lower at 54.5, down from 55.1 the previous month.
Technical Outlook: Four-Hours GBP/USD Price Chart
From a technical standstill, the price rebounded from the vicinity of 1.24848 level after an earlier corrective move. An increase in buying pressure from the current price could see GBP/USD pair retest the key resistance level plotted by an ascending trendline extending from the mid-March 2023 swing high. A convincing move above this resistance level (bullish price breakout) would pave the way for additional gains around the GBP/USD pair. The bullish trajectory could extend north to tag the next obstacle at the 1.26715 level. In highly bullish cases, GBP/USD extends its rally towards the supply zone ranging from 1.27816 - 1.28161 levels.
All the technical Oscillators in the chart are holding bullish dip territory as both the RSI (14) and MACD crossover are above their signal lines, indicating bullish price action this week. The bullish outlook is validated by accepting the price above the technically strong 200 EMA (yellow) at the 1.20658 level. Additionally, the 50 (red) and 200 (yellow) EMA Crossover (Golden cross) at the 1.20693 level adds credence to the bullish thesis.
On the flip side, if dip-sellers and tactical traders jump in and trigger a bearish reversal price will first find support at the 1.24501 support level. Deciding this support level into a resistance level would pave the way for additional losses. The bearish downtick could further accelerate toward tagging the 20-EMA at the 1.24172 level. If sellers overcome this barrier, the downtick could be extended toward retesting the key support level plotted by an ascending trendline extending from the mid-March 2023 swing low. A convincing break below this support level (bearish price breakout) would pave the way for a heavy sell-off around the GBP/USD pair.