In the long term, and according to the performance on the daily chart, it appears that the GBP/USD is trading within a sharply bullish channel formation.
- The GBP/USD exchange rate pared its previous losses to trade strongly near year-highs before last weekend, after the US Federal Reserve’s preferred inflation measure fell more than expected in the latest update, limiting a corrective rebound in the dollar.
- The GBP/USD gains reached the resistance level at 1.2422, its highest in two months, and closed the week’s trading around the level of 1.2330, as the currency pair was exposed to profit-taking sales.
- Its recent gains pushed the technical indicators towards overbought levels, clear on the daily chart of the time frame.
The dollar’s exchange rates fell from intraday highs while the pound, the euro, and other currencies rose on Friday after the Bureau of Economic Analysis said the core personal consumption expenditures price index rose 0.3% last month. It registered only a 4.6% increase for the year ended. The consensus among economists was looking for a 0.4% increase in February to keep the annual pace of core personal consumption expenditures inflation unchanged at 4.7%, although broad and noteworthy declines in the pace of price increases across categories gave a weak result on the day.
Commenting on the results, Ian Shepherdson, chief economist at Pantheon Macroeconomics, says, “0.4% is not an acceptable idea for anyone. Only one round of PCE data will be released before the May meeting, but even if the numbers are stunningly good, they will not, alone, be enough to stop the Fed from raising rates again.”
Durable goods inflation turned negative in February and non-durable goods inflation more than halved, but more important for Fed policymakers was likely to be a halving in service price inflation and declines in the cost of food, energy commodities, and energy services.
On the other hand, UK GDP for the fourth quarter outperformed the expected (QoQ) change of 0% with a change of 0.1%. The equivalent (YoY) also beat expectations of 0.4% with a change of -0.6%. Earlier in the week, February’s M4 Money Supply missed the expected change (MoM) of 0.1% with a change of -0.4%, while February Consumer Credit beat the expected figure of £1.3bn with a figure of £1.413bn.
From the United States, the annualized GDP for the fourth quarter missed expectations by 2.7% with a change of 2.6%. The GDP price index matched the expected change of 3.9%, while Initial Jobless Claims for the week ended March 24th missed the expected claims number at 196K with a slightly higher tally of 198K.
In the near term, according to the performance of the hourly chart, it appears that the GBP/USD is trading within a bearish channel formation. This indicates a significant short-term bearish bias in market sentiment. Therefore, the bears will be looking to extend the current declines towards 1.2358 or below to support 1.2335. On the other hand, the bulls – bulls – will be looking for a bounce around 1.2399 or higher at the 1.2421 resistance.
In the long term, and according to the performance on the daily chart, it appears that the GBP/USD is trading within a sharply bullish channel formation. This indicates a strong long-term bullish bias in market sentiment. Therefore, the bulls will be looking to extend the current run of gains towards 1.2444 or higher to the 1.2519 resistance. On the other hand, the bears will target long-term profits at around 1.2288 or below the support at 1.2213.