- After starting last week near the 1.33900 level as risk adverse trading proved rather strong in the first handful of hours last Monday, the GBP/USD ripped higher and went into the weekend around the 1.37164 ratio. On Thursday the GBP/USD tested highs around 1.37730, which had last been seen in February of 2022.
- Not only did risk appetite return to financial institutions based on the ceasefire in the Middle East, but economic conditions in the U.S have created a notion that the U.S Federal Reserve will have to begin cutting the Federal Funds Rate no later than September, and may have to remain actively dovish.
- Yes, there are plenty of doubters regarding a more dovish Federal Reserve, but for the time being inflation in the U.S remains tame and growth lackluster.
Bullish Trend Emerges Stronger for the GBP/USD
On the 12th of June the GBP/USD was touching values near the 1.36325 ratio, but upon an escalation of tensions in the Middle East the currency pair was quickly testing the 1.35000 vicinity again. Then on early Monday when Forex opened nervously, the GBP/USD produced more selling. However, as news about a ceasefire became fact the GBP/USD found buyers quickly. By Tuesday and Wednesday the 1.36500 level was being challenged again.
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Upon the weaker than expected U.S GDP numbers, the GBP/USD also saw an influx of buying action and by late Thursday highs were being sustained over the 1.37000 level. The ability of the GBP/USD to go into the weekend traversing stronger elements opens the door to the belief financial institutions are comfortable with the upper tier. However, the GBP/USD did not hold onto its apex territory and did see some selling in the last few hours on Friday.
USD Correlations and Jobs Numbers Influence
USD weakness has been widespread in Forex the past few months. No, the trend for the GBP/USD has not been a one way avenue upwards, but the steady climb does correlate to the broad Forex market and growing sentiment the U.S Fed is going to be forced to lower its Federal Funds Rate.
- While the Fed may not cut interest rates in late July during its next FOMC meeting, it is likely they will signal rate cuts to come in September.
- The notion that this idea has already been traded into the market is important.
- Day traders need to be cautious this week, because some larger financial institutions may feel equilibrium has been found for the moment.
- The U.S will release jobs numbers on Friday and this could provide some additional impetus for the GBP/USD.
- If the Non-Farm Employment Change outcome is weaker than anticipated this could create more buying in the GBP/USD.
- Leading up to the publication of the data, traders should brace for choppy conditions later this week.
GBP/USD Weekly Outlook:
Speculative price range for GBP/USD is 1.36700 to 1.38300
The GBP/USD is now trading within heights not seen in over three years. This should create some suspicion among traders that the currency pair has traversed to a level that some financial institutions may start to begin wondering if the GBP/USD is overbought. However, if the Federal Reserve does signal strong interest rate cuts this could continue to create more buying. But this is a dangerous notion, for the time being the Fed may continue to try and remain cautious sounding.
And it is possible that current values in the GBP/USD may be seen as a place to test support and resistance, which would produce near-term choppiness. Over the past few months financial institutions have certainly traded based on their prevailing weaker USD sentiment, but traders should note that large players may now start to turn cautious and want more proof regarding any bullish sentiment in the GBP/USD. Having produced widespread Forex volatility, the past handful of months via fast results should be a definite caution sign for all. At some juncture, folks may start to think a pause in the bullish trend is the right idea and believe a test of current grounds and near-term technical reactions will dominate.
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