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The GBPUSD rallied by +0.26% on Friday as the US dollar continue to suffer losses following a drop in US inflation data. The US CPI print for December fell to 6.5% from 7.1% in the previous reading. Traders seem to take this data negatively for the US dollar as it fuels hopes for a slower Fed rate path. Early this week, Fed Chairman Powell failed to provide policy guidance and it underpins a weaker dollar in the near term.
However, bulls could face near-term headwinds from the negative economic data from the UK. The UK Trade Balance data for November came in worse-than-expected at -15.62B against -14.90B forecasted. Industrial Production YoY data came in at -5.1% versus -3.0% surveyed while UK GDP data came in mixed.
There will be a release of US Import and Export Price index data later in the New York session along with Michigan Consumer Expectations preliminary data. Traders shift their focus to the release of the UK’s inflation report and Retail Sales next week along with US Retail sales.
Weekly Chart Analysis
The GBPUSD experienced modest gains following a bounce above the 1.2000 level. Upside gains are capped by a 50-day moving average, indicating an immediate resistance at the 1.2250 level and a break above that level could give bulls the 1.26500 level, an 8-months high. The MACD indicator shows volume bars are trading above the 0.000 benchmark suggesting the pair could experience a further move to the upside.
However, a failure to break above the 1.2250 level could cause the bulls to exit early and the pair will experience a retracement towards the 1.20000 level. A break below the 1.20000 level could extend the further decline towards the 1.1650 level coinciding with the Bollinger Band Baseline. Bears could gain momentum below the 1.1650 level and the next key target is the 1.1000 level.
The ActivTrader Sentiment tool suggests that 55% of Retail Traders are bearish on the GBPUSD pair. This could be fundamentally underpinned by negative economic data from the UK released early Friday morning. The Manufacturing Production numbers slowed down in November to -0.5% against -0.2% surveyed reinforcing dovish BoE expectations.
However, the GBPUSD could extend its rally further as cooling US inflation acts as a near-term tailwind for buyers in the near term. The drop in US inflation fuels the hopes of a slower Fed rate path and dollar weakness could help lift GBPUSD sentiment in the near term.
Daily Chart Analysis
The GBPUSD has a strong bullish outlook as bulls make another attempt to reclaim the 1.2400 level. The pair is inside a rising channel suggesting a strong recovery for the bulls in the near term. Looking at the RSI, the indicator is currently trading above the 50.00 level suggesting the momentum is strongly bullish on a Daily Time Frame. The 50-day and 200-day moving averages used as dynamic support and resistance levels by professional traders are acting as immediate support levels for the pair, coinciding with the 1.1850 level.
However, a break below the 1.1850 level could invalidate the current outlook and traders could find long-term short positions below that immediate support level. The next key levels to watch out for would be the 1.15000 and 1.10000 psychological levels.
