Cable experienced a considerable rebound this week, after Monday’s poor results in particular. The pair declined to test 1.2300 before rebounding over 200 pips now to the 1.2520 levels. It is worth noting that buyers have turned the short-term bias in their favor and things may continue further in the coming sessions.
So what are the key levels to consider if this week’s rebound continues?
GBP/USD daily chart
The first point is the 38.2 Fibonacci retracement level at 1.2526, providing minor resistance for now. Above that is the 200 day moving average (blue line) at 1.2559 and this is a more crucial level to be wary of. Sellers will look to build on this to quell any further upside momentum, so this will be something to watch in the days to come.
Looking at fundamentals, US data, as noted here, will be a key catalyst for any moves this week. The dollar is losing ground after a good performance in early April and data from the next two days could go some way to deciding its overall fate for the month.
The BoE appears set for an August rate hike and traders have been punished for trying to sneak in a June rate hike in recent weeks. For now, the odds of a move in August are around 90%. So unless traders return to thinking about June, the Pound’s decline on this front may be more limited. This is especially true since the BoE has also made it clear that it is not really in favor of a decision in two months.
Meanwhile, Fed pricing shows about a 96% chance of a September rate cut. This follows warmer US data in early April, but there appears to be some new thinking following colder data of late. It’s all about evolving with the flow of data and if we get more moderate US data over the next two weeks, a July evolution (50% currently taken into account) could even be considered.
As such, the balance of risks appears to have shifted slightly for GBP/USD. This is also considering the downside technical momentum, which was halted earlier this week.
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