GBP Rallying on Monday
GBPUSD is rallying on Monday as traders look ahead to both the Fed and BOE meetings this week. Given the broad expectation that the Fed will lean on the dovish side while the BOE might strike a more neutral tone, there is room for a fresh rally to develop here with the potential for a breakout to new YTD highs if we see strong divergence between the two central banks.
Fed Expectations
The FOMC on Wednesday will be a pivotal event for market as we approach the start of Q4. Recent weakness in US labour market data has fuelled a strong dovish shift in market expectations with traders now looking for three .25% cuts this year. Should the Fed cut rates on Wednesday while signalling that further easing looks likely, in light of the slump in jobs growth, this should see USD come under fresh selling pressure. In this scenario, GBPUSD should remain bid into Thursday’s BOE meeting.
BOE Expectations
For the BOE, no rate change is expected this week and so focus will purely be on the bank’s guidance. Given that inflation remains well above the bank’s target, and is continuing to rise, the BOE is expected to warn of its readiness to hike rates if needed. This should set a clear contrast into tone between itself and the Fed, creating tradable divergence in GBPUSD, favouring a retest of YTD highs near-term.
Technical Views
GBPUSD
Following the recovery above the 1.3427 level, price is now testing the 1.3608 highs and with momentum studies bullish, focus is on a continuation higher towards 1.3748 next and a retest of the broken bull trend line. To the downside, 1.3427 is the key pivot to watch with the bull outlook intact while price holds above there.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.