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Colin First
Stack of pound coins macro

The GBP/USD pair continued with its good two-way price action on Wednesday and finally settled near the lower end of its daily trading range. A strong follow-through US Dollar selling provided some initial lift, albeit failed to capitalize on the uptick and started losing ground after the release of the latest UK consumer inflation figures. The pair witnessed some goodish intraday bounce from the 1.2600 handle, though was again sold into near the 1.2675-80 supply zone following not so dovish FOMC statement/economic projections. As was widely expected, the Fed raised interest rates for the fourth time this year, by 25 bps, and now foresee fewer rate increases in 2019 (two) than projected at the September policy meeting. The US central bank also lowered its growth and inflation forecast but the revisions were not as significant as anticipated by the market and hence, provided some immediate respite for the USD bulls.

Fears of Renewed Curve Inversion Supports GBP Bulls

With investors looking past the latest FOMC monetary policy update, some renewed greenback weakness helped the pair to regain positive traction on Thursday. Market participants now look forward to the UK monthly retail sales data for some short-term trading impetus during the European session. The BOE is also scheduled to announce its monetary policy decision later in the day but is more likely to be a non-event amid the political deadlock over the UK efforts to exit the European Union. GBP bulls are  supported by renewed fears of possible curve inversion as investors and analysts believe that the short-term bond yields could rise sharply, leading to a faster drop in the spread between the 10-year and two-year Treasury yield owing to fed forward guidance. As of writing this article, GBPUSD pair is trading at 1.2656 up by 0.36% on the day.

From a technical perspective, intraday pull-backs have been finding decent dip-buying interest near a short-term ascending trend-line resistance break-point, now turned support. Hence, bearish traders are likely to wait for a convincing breakthrough the mentioned support before positioning for the resumption of the pair’s prior depreciating move. On a sustained weakness below the 1.2600 handle, the pair is likely to accelerate the fall towards the 1.2540-35 intermediate horizontal support before eventually dropping to test the key 1.2500 psychological mark. On the flip side, any further up-move now seems to confront immediate resistance at another descending trend-line, currently near the 1.2665 region, which if cleared will reinforce near-term bullish breakout and lift the pair back beyond the 1.2700 handle towards testing the 1.2720-25 supply zone.

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