GBPUSD Bullish Momentum Faces Potential Correction

Andreas Thalassinos
Andreas Thalassinos

02.10.2024

This week's key economic events include several significant data releases, such as Nonfarm Employment Change and ISM Services PMI from the US, as well as Switzerland's CPI.  The GBPUSD has maintained an upward trend since April, driven by a bullish failure swing pattern.  Technical indicators like the 50-period EMA and RSI support the ongoing bullish momentum, though negative divergence with the Momentum oscillator suggests the potential for a correction.  Traders are watching key resistance and support levels.  Meanwhile, the Federal Reserve is considering a quarter-point rate cut in November, while the European Central Bank may implement a rate cut in October, influenced by falling inflation and economic slowdown in the Eurozone.

Overview

This week's key economic events include several significant data releases, such as Nonfarm Employment Change and ISM Services PMI from the US, as well as Switzerland's CPI.  The GBPUSD has maintained an upward trend since April, driven by a bullish failure swing pattern.  Technical indicators like the 50-period EMA and RSI support the ongoing bullish momentum, though negative divergence with the Momentum oscillator suggests the potential for a correction. Traders are watching key resistance and support levels.  Meanwhile, the Federal Reserve is considering a quarter-point rate cut in November, while the European Central Bank may implement a rate cut in October, influenced by falling inflation and economic slowdown in the Eurozone.

Key Economic Events

Wednesday 15:15 am (GMT+3) - USA: ADP Nonfarm Employment Change (USD)

Thursday 09:30 am (GMT+3) - Switzerland: CPI m/m (CHF)

Thursday 15:30 (GMT+3) - USA: Unemployment Claims (USD)

Thursday 17:00 (GMT+3) - USA: ISM Services PMI (USD)

Friday 15:30 (GMT+3) - USA: Nonfarm Employment Change (USD)

Technical Analysis

Since April 22, GBPUSD has been in a sustained upward trend, following a rebound from the 1.22994 level. A bullish reversal pattern, specifically a failure swing, has driven this momentum.  The failure of the trough at 1.2446 to break below the prior low, followed by a decisive move above 1.2634, confirmed the initiation of a technical uptrend. This price action signaled a shift in market sentiment, reinforcing the bullish outlook for the pair.

Technical indicators continue to support a bullish outlook for GBPUSD. The pair is trading above its 50-period Exponential Moving Average (EMA), signaling sustained upward momentum. Additionally, the Momentum oscillator remains above 100, while the Relative Strength Index (RSI) holds above 50, suggesting that buying pressure is likely to persist.  However, the presence of negative divergence between price action and the Momentum oscillator signals a potential risk of a near-term correction, warranting cautious monitoring of price behavior.

Potential Upside Targets  

Should the bulls maintain market control, traders may direct their attention toward the four potential resistance levels below:

1.33508: The initial resistance is 1.33508, which aligns with the weekly Pivot Point (PP) estimated using the standard methodology.

1.34337: The second price target is identified at 1.34337, corresponding to the daily high marked on September 26.

1.35365: The third target is established at 1.35365, aligning with the weekly resistance (R2) estimated using the standard Pivot Points methodology.

1.36341: An additional price target is estimated at 1.36341, corresponding to the 261.8% Fibonacci Extension drawn from the swing high of 1.32385 down to the swing low of 1.30019.

Potential Downside Targets  

Should the sellers take market control, traders may consider the four potential support levels listed below:

1.32659: The first level of support is seen at 1.32659, representing the swing high established on August 27.

1.31651 The second support level is 1.31651, corresponding to the weekly support (S2) estimated using the standard Pivot Points methodology.

1.30019: The third support level is identified at 1.30019, representing a weekly low marked on September 11.

1.28432: An additional downward target is observed at 1.28432, reflecting the 261.8% Fibonacci Extension drawn from the swing low of 1.30875 to the swing high of 1.32385.

Fundamentals

Federal Reserve chair Jay Powell indicated that the central bank might revert to a quarter-point rate cut in November, following a larger half-point reduction earlier in the month.  Powell emphasized the Fed's cautious approach, suggesting that monetary policy would move gradually toward a neutral stance, neither stimulating nor restricting the economy.  He expressed optimism about the economy's strength, particularly in the labor market, despite cooling demand.  Powell noted that further cuts would depend on economic data but ruled out the need for rapid action, highlighting the Fed's focus on maintaining stability without triggering a significant rise in unemployment.

On the other hand, the European Central Bank (ECB) is nearing a possible rate cut in October as inflation in the Eurozone falls below its 2% target and economic activity slows.  ECB President Christine Lagarde hinted at the potential shift in monetary policy, marking a change from previous denials of a cut. Traders now anticipate a 90% chance of action at the next meeting. Additional pressure comes from rising sovereign debt concerns in France, with its government bond yields surpassing those of Spain and Portugal.  The ECB's decision may also influence other central banks, including the Bank of England, which could adjust its rate-cut strategy.

Conclusion

In conclusion, GBPUSD continues to show bullish momentum supported by technical indicators, though negative divergence suggests the potential for a near-term correction.  Key economic events this week, including US employment data and Switzerland's CPI, could impact market direction.  Meanwhile, central bank decisions remain pivotal, with the Federal Reserve signaling a potential rate cut in November and the European Central Bank considering a cut in October due to slowing inflation and economic activity in the Eurozone.

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Andreas Thalassinos
Andreas Thalassinos

Andreas Thalassinos is a recognized authority in the financial markets and world renowned for his expertise in algorithmic trading. He is a Certified Technical Analyst and highly respected lecturer in the education of traders, investors, and financial markets professionals. Thalassinos has played a key role in the development of education within the industry, training tens of thousands of traders of all skill levels. Traders value his seminars and workshops for the rich content, his passionate, charismatic, and lively presentations.