GBPUSD is having a busy week with inflation data from the US, GDP from the UK, and the BOE rate hike. On top of that, the price is just below a three-year-long downtrend. GBPUSD will need to decide which way to go.
BOE raised interest rates by 25 basis points in Thursday’s meeting. Markets expect at least one more hike. But the key point of the meeting was growth and inflation forecasts. In earlier meetings, BOE forecasts showed a six-quarter-long recession. Now the bank has dramatically changed its forecast and stated that there will be no recession, not even a negative quarter, according to the base scenario. This huge shift changed the CPI outlook as well. BOE said that inflation will remain much higher than their expectation and the fall will be much slower. This could means higher and longer rates. Today’s GDP data was in line with the Bank of England’s no-recession forecast.
On the US side, CPI and PPI data came out lower than expected. But the fall of inflation seems to be slowing down, and core inflation is still too high. The main topic in the US could be the debt ceiling in the coming weeks as the deadline for a US default is closing in.
GBPUSD tested a three-year-long uptrend this week but faced a selloff from the key resistance despite positive macro news flow. The 1.23-1.2450 zone will be a crucial support zone. The middle point of the massive 2021-2022 fall, the 21-week moving average which has worked very well as support or resistance for years, and the latest tops converged at this zone. If it breaks, short pressure may increase in the following weeks.
For upward moves, the key trend is at 1.2670, and just above it, the Fibonacci 61.8% resistance is at 1.2760. So, the 1.2670-1.2760 zone could become a major resistance zone for GBPUSD. Strong support and resistance zones so close to each other might test FX traders hard before breaking and deciding which way to go.
