GBP/USD Return to $1.13 in the Hands of US Inflation and Fed Chatter

It is a busy day for the GBP/USD. From the economic calendar, finalized Q2 GDP numbers drew interest ahead of the European opening bell.

The UK economy expanded by 0.2% (prelim: -0.1%) in Q2 versus 0.8% growth in Q1. Year-over-year, the economy expanded by 4.4% versus a prelim 2.9%. In the first quarter, the economy grew by 8.7%, year-over-year.

According to ONS,

  • Services output increased by 0.2%, with construction output also on the rise.
  • In Q2, services output was revised up from a 0.4% fall
  • However, production output declined by 0.2% in Q2, driven by a 1.1% fall in manufacturing output.
  • Real household expenditure increased by 0.1%.

Later this morning, the Bank of England’s Consumer Credit report for August is due.

From the Bank of England, there are no Monetary Policy member speeches on the docket to influence the Pound. However, more commentary from the UK government and the Bank of England is likely following government assurances on Thursday that the government is working closely with the Bank of England.

GBP/USD Price Action

At the time of writing, the Pound was up 0.09% to $1.11266.  A mixed start to the day saw the Pound rise to an early high of $1.12042 before falling to a low of $1.10696.

GBP/USD gives up early gains.
GBPUSD 300922 Daily Chart

Technical Indicators

The Pound needs to avoid the $1.0999 pivot to retarget the First Major Resistance Level (R1) at $1.1237. Following today’s GDP numbers, government and Bank of England chatter will need to continue providing Pound support for a return to $1.12.

In the case of another extended rally, the GBP/USD would likely test resistance at $1.13 and the Second Major Resistance Level (R2) at $1.1357. The Third Major Resistance Level (R3) sits at $1.1714.

The market focal point remains the Bank of England policy response to the UK Government’s fiscal measures. Despite Wednesday’s rally and this morning’s early gains, the MPC still needs to contend with a weaker Pound.

A fall through the pivot would see the Pound test the First Major Support Level (S1) at $1.0879. In the case of another extended sell-off, the Pound would test buyers at $1.08 before any recovery. However, the Pound should avoid sub-$1.08 and the Second Major Support Level (S2) at $1.0642.

The Third Major Support Level (S3) sits at $1.0284.

GBP/USD resistance levels in play above the pivot.
GBPUSD 300922 1 Hour Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 100-day EMA, currently at $1.10172.

The 50-day narrowed to the 100-day EMA, while the 100-day EMA flattened on the 200-day EMA, delivering mixed signals. A GBP/USD move through the 100-day EMA ($.11971) and R1 ($1.1237) would give the bulls a look at R2 ($1.1357). The 200-day EMA sits at $1.14351.

However, a fall through the 50-day EMA would give the bears a run at S1 ($1.0879).

EMAs bearish
GBPUSD 300922 4-Hourly Chart

The US Session

It is a busier day ahead on the US economic calendar. Personal spending and Core PCE Price Index will be in the spotlight. While the consumption numbers will influence, inflation will be the market focal point.

A larger than forecast pickup in the annual inflation rate would support another dollar breakout session. Economists forecast the Index to rise by 4.7% year-over-year in August, up from 4.6% in July.

Later in the session, finalized Michigan Consumer Sentiment and Expectation numbers are also out. Any material revisions would influence the dollar.

FOMC member commentary will also draw interest, with members Bowman, Mester and Williams and Fed Vice-Chair Brainard speaking today,

A pickup in inflationary pressure and hawkish Fed chatter would likely see the Dollar Spot Index (DXY) resume its move towards 115.