British Pound Analysis: GBP/USD Double Top or Pause at 1.2850?

GBP/USD Takeaways

The US dollar is stabilizing after Friday’s big NFP-driven drop, but a Fed rate hike later this month remains the odds-on likelihood ahead of CPI tomorrow.
GBP/USD dropped a quick 100 pips at the open after testing 1.2850 on Friday, but the evidence so far points to continued upside.
A confirmed break above 1.2850 could quickly expose the 1.2900 handle and previous-support-turned-resistance from March and April of last year near 1.3000.

GBP/USD Fundamental Analysis

It was a quiet start to a new week in today’s Asian and European sessions, with the US dollar broadly stabilizing after Friday’s big drop.

The ostensible culprit driving the move was, of course, the US Non-Farm Payrolls report, which despite its net positive reading, showed the first signs of cracks in the US labor market. Though the headline reading came in just a tick below estimates, the previous two employment reports were revised down by more than 100K net new jobs. For now, the Fed is still highly likely to raise interest rates at its meeting later this month, but the market is growing more skeptical that Jerome Powell and Company will be able to deliver the second, second-half rate hike they had previously planned on.

Speaking of interest rate expectations, tomorrow’s US CPI report will be a key release, even if it’s unlikely to move the needle on this month’s Fed decision. With last June’s 1.2% m/m surge in consumer prices “rolling off,” the annual rate of inflation is expected to drop from 4.0% to 3.1%, with the so-called “Core” (ex-food and -energy) reading anticipated to come in at 5.0%. Even a slightly below-expectation reading would be unlikely to deter the Fed from an interest rate increase later this month, but it would throw more doubt on anything after that, with potential downside risks for the US dollar.

British Pound Technical Analysis – GBP/USD Daily chart

Source: TradingView, StoneX

Keying in on GBP/USD, the pair rocketed up to set an incremental (1.1-pip) new year-to-date high based on our prices on Friday before pulling back in today’s Asian session. Many traders, especially newer ones, are constantly trying to pick tops and bottoms and may therefore be tempted to characterize this as a potential “double top” reversal pattern, but speaking from experience, this type of setup is more likely to see a short-term dip before resuming the longer-term, established uptrend.

As we go to press, the pair has recovered the majority of its intraday dip to trade back within 50 pips of key resistance at 1.2850. So far, today’s price action is showing an “inside candle,” suggesting consolidation after Friday’s big rally, so as long as the intraday low near 1.2750 holds, the bias will remain to the topside. A confirmed break above 1.2850 could quickly expose the 1.2900 handle and previous-support-turned-resistance from March and April of last year near 1.3000.

Meanwhile, a break of the intraday low at 1.2750 would point to a deeper pullback toward 1.2700 or 1.2650 before the pair finds additional support.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.