The recently published inflation data has considerably impacted the currency market, causing the Dollar Index to move significantly upward. This unexpected surge in inflationary pressure has resulted in market speculation and a reevaluation of the current market sentiment concerning a possible rate cut by the Federal Reserve in the near future.
Traders will be keeping a close eye on the currency market, as significant economic data that could affect currency valuations will be released later today.
Overview
The recently published inflation data has considerably impacted the currency market, causing the Dollar Index to move significantly upward. This unexpected surge in inflationary pressure has resulted in market speculation and a reevaluation of the current market sentiment concerning a possible rate cut by the Federal Reserve in the near future.
Traders will be keeping a close eye on the currency market, as significant economic data that could affect currency valuations will be released later today.
Upcoming Economic Events
Thursday, 12:15 pm (GMT+0): Main Refinancing Rate (EUR)
Thursday, 12:30 pm (GMT+0): Core PPI m/m (USD)
Thursday, 12:30 pm (GMT+0): PPI m/m (USD)
Thursday, 12:30 pm (GMT+0): Unemployment Claims (USD)
Thursday, 05:01 pm (GMT+0): 30-y Bond Auction (USD)
Friday, 06:00 am (GMT+0): GDP m/m (GBP)
Friday, 02:00 pm (GMT+0): Prelim UoM Consumer Sentiment (USD)
Technical Analysis
The Pound Sterling to Dollar exchange rate has been trending downward since March 8, when prices formed an Evening Star reversal pattern on the chart, pushing the currency pair lower.
Although the GBPUSD rebounded from the trough at 1.25395, the more-than-expected inflation data released by the Bureau of Labor Statistics pushed it to plummet beyond the recent trough. The bearish scenario is supported by the 50-period Moving Average and the Momentum oscillator. Specifically, the price is below the Moving Average line, and the Momentum registers readings below its 100 baseline.
Upside Potential Targets
If the bulls take control of the market, traders may consider the following resistance levels:
1.26237: The first resistance aligns with the 23.6 percent Fibonacci Retracement drawn from the peak 1.28936 down to the trough 1.25395.
1.26765: The second level is 1.26765, matching the 38.2 Fibonacci Retracement.
1.27166: The third target is 1.27166, which represents the 50 percent retracement from the swing high of 1.28936 to the swing low of 1.25395.
1.27950: The fourth key resistance level is seen at the 61.8 percent Fibonacci Retracement.
Downside Potential Targets
Should the bears manage to dominate the market, there are three potential downside targets that traders may consider:
1.24344: The first downside target stands at 1.24344, aligning with the 161.8 percent Fibonacci Extension drawn from the trough 1.25395 to the peak 1.27095.
1.24001: The second support is estimated at 1.24001, representing the S2 support Pivot Point using the standard methodology on the weekly timeframe.
1.22802: An additional potential support could be identified at 1.22802, representing the 261.8 percent Fibonacci Extension.
Fundamentals
The US Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) rose by 0.4 percent in March, exceeding analysts' estimates on a seasonally adjusted basis. This increase is consistent with the 0.4 percent increase reported in February.
Also, the all-items index increased by 3.5 percent in the 12 months ending March, which is higher than the 3.2 percent uptick observed in the preceding 12-month period ending February. Over the last year, the CPI for all items, excluding food and energy, demonstrated a 3.8 percent increase. The energy index also rose by 2.1 percent for the 12 months ending March, marking the first 12-month increase since the period ending February 2023. Meanwhile, food prices increased by 2.2 percent over the last year.
One of the most well-known inflation indicators is the Consumer Price Index (CPI), which measures the percentage change in the price of a basket of goods and services typically consumed by households.
Conclusion and Considerarions
In conclusion, the release of stronger-than-expected consumer data impacted the currency market, and the GBPUSD could not be the exception. The GBPUSD has been following a downward trajectory, forming successively lower peaks and troughs amid many important economic releases. Staying informed about economic events and geopolitical developments will be essential in making informed trading decisions in the GBPUSD and the currency market in general.