GBP/USD traded north during the European morning Wednesday after the UK jobs data showed that the unemployment rate fell to 4.3% in January from 4.4% in December, while average weekly earnings (including bonuses) accelerated to +2.8% yoy from an upwardly revised +2.7% previously.
The rally came from near the 1.4000 territory, with the rate testing once again the key resistance territory of 1.4070. The pair continues to print higher peaks and higher troughs above the prior downside resistance line drawn from the peak of the 25th of January, as well as above the new uptrend line taken from the low of the 1st of March. In our view, this keeps the near-term outlook positive.
If the bulls prove strong enough to overcome the 1.4070 resistance territory, then we may see them targeting our next resistance zone of 1.4145, marked by the peak of the 16th of February. Today, traders of this pair turn their eyes on the FOMC decision later in the day. The market is almost certain that the Committee will raise rates by 25bps, so if this is the case, attention will quickly fall to the updated “dot plot”. Given that the market has started to embrace the idea of a 4th hike by year end, a plot still pointing to 3 hikes could prove the catalyst for another surge in Cable.
On the other hand, an upside revision of the dots could cause this pair to retreat. However, even if the rate dips below the 1.3980 zone, there is still a decent likelihood for a rebound from near the aforementioned short-term uptrend line. We would like to see a break below that line before we take the sidelines.
In order to change our short-term view to negative, we would like to see a clear and decisive move below 1.3890. Such a move could initially aim for our next support of 1.3840.
