GBP/USD Moves Higher as Jobs and Inflation Data Stronger

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As markets are already looking for a 25bps hike, they may start pricing at a 50bps hike. If so, then GBP / USD will continue to move higher.

As one of the first major central banks to raise rates, the Bank of England was receptive and should remain so until their next Interest Rate Decision meeting on 17 March. After all, jobs appear to be strong, with the January Number of Applicants declining by 31,900 against an estimate of a 28,000 decline. In addition, Average Hourly Income, including bonuses, was better at 4.3% versus 3.8% expected. Inflation data was also higher for January, with the headline CPI print at 5.5% YoY versus 5.4% YoY expected. Also, the Core CPI data was higher for January, printing 4.4% YoY against an expectation of 4.3% YoY. With both jobs and inflation data looking strong, GBP / USD has moved higher.

GBP / USD has been moving lower since June 1, 2021, when the pair made a near-term high at 1.4250. It was then founded on December 9, 2021 in a descending wedge pattern at 1.3170. GBP / USD came out of the wedge and returned 50% of that range to 1.3748. It also posted a false break above a downward sloping trend line dating to July 30th, 2021 and the 200 Day Moving Average near the 1.3710 level. The pair then retreated to the 61.8% Fibonacci retracement level of the December 9, 2021 lows to the January 13 highs, near 1.3391, and solidified into a flag pattern. On Thursday, GBP / USD broke above the flag and is trying to close above the July 30, 2021 trend.

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Source: Tradingview, Stone X

The target for the flag pattern is near the January 13 highs at 1.3760. If the price is to reach the target, it should close above the July 30, 2021 trend at 1.3635 and the 200 Day Moving Average at 1.3688 (see daily). The next resistance is at the January 13 highs at 1.3749. Above the target, resistance is at the 61.8% Fibonacci retracement of the longer-term range at 1.3838. First support is just below at the top trend line of the flag near 1.3600. Down there, support is at the flag minimum and the 50-Day Moving Average near 1.3486 and then the January 27 low of 1.3358.

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Source: Tradingview, Stone X

The Bank of England will see another job report ahead of its March 17 meeting. However, the inflation data will not be available until the day after the meeting. Therefore, the recent CPI data should carry a lot of weight. As markets are already looking for a 25bps hike, they may start pricing at a 50bps hike. If so, then GBP / USD will continue to move higher.

Source

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