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Cable (GBP/USD) Analysis

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A Big Couple of Days for Major Central Bankers (Fed, BoE)

The Fed is all set to provide an update on its policy settings but there is a strong expectations there will be no change in the interest rate. Instead, markets are looking for clues on the bank’s thinking and whether a March or May cut is preferred. However, the data-dependent Fed is more likely to bide its time, opting to digest incoming data before making such a decision.

Then tomorrow the Bank of England (BoE) will have its turn but can offer more for markets to look at as it releases its latest staff forecasts, with markets focused on inflation and growth. The week ends with non-farm payrolls and the Michigan consumer sentiment survey which has been on the up of late – matching strong fundamental data.

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The Bank of England has been focused on the labour market, wage growth and services inflation. The labour market has witnessed some easing while wage growth has moderated but still remains elevated. Services inflation is the more stubborn metric and as long as it remains elevated, the BoE will have to maintain its more hawkish rhetoric. Services inflation is the red line below and has resisted the opportunity to track lower alongside CPI and core CPI.

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Source: Refinitiv Datastream, prepared by Richard Snow

GBP/USD Range to be Tested by Major Central Bank Announcements

Cable has exhibited an extended period of sideways trading within a broad range. The upper side of the range is at 1.2800 with the lower side at 1.2585 – encapsulating the majority of price action since mid-December.

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How to Trade GBP/USD

The pair has the potential to breach the range on either side given the volatility major central banks attract, but the big question remains whether enough momentum can sustain a potential directional move.

Any significant revelations perceived by the market has the potential to change the trading landscape for the pair. Support at 1.2585, then the 200-day simple moving average. Resistance at 1.2800.

GBP/USD Daily Chart

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Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX



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