GBP/USD Eyes Bullish Momentum on BoE's Hawkish Stance

GBP/USD Eyes Bullish Momentum on BoE's Hawkish Stance

The GBP/USD pair maintains its positive momentum during the early European session on Monday, propelled by the Bank of England's (BoE) hawkish stance. The central bank's commitment to a prolonged restrictive policy to bring inflation down is supporting the uptick in the pair.

Currently trading near 1.26650, the GBP/USD pair is situated around the critical 50% and 61.8% Fibonacci levels. This area is being closely watched for a potential swing continuation, and the price could find support around 1.26500, paving the way for a fresh bullish impulse.

However, the pair faces challenges from the possibility of a bearish action in Wall Street and additional hawkish commentary from the Federal Reserve. These factors could contribute to USD resilience, limiting the GBP/USD's upward push.

Market participants will keep a keen eye on the upcoming release of the UK's Consumer Price Index (CPI) data for November, scheduled for Wednesday. This economic indicator could play a crucial role in determining the pair's trajectory in the days to come.

Our preference

Long positions above 1.2500 with targets at 1.27930 & 1.28500 in extension.

Comment:

GBP/USD Bulls Anticipate Strong CPI Data Amidst a Fibonacci Pullback

As projected in our analysis, the GBP/USD has initiated a robust pullback, finding support in the 50% and 61.8% Fibonacci retracement zones. The currency pair's performance during the Monday session and Tuesday's London session signals a cautious approach among investors, driven by the looming release of the United Kingdom Consumer Price Index (CPI) for November on December 20.

Fibonacci Support:
The GBP/USD's strategic pullback aligns with the anticipated Fibonacci support, creating a compelling entry point for bullish traders. The established support zones of 50% and 61.8% set the stage for a resurgence, emphasizing the significance of technical analysis in navigating currency market dynamics.

Impact of CPI Data:
Tuesday's opening London session unfolded amid uncertainty over the impending CPI data release, with investors keenly monitoring the outcome. A softer inflation reading could prompt a shift in the Bank of England's (BoE) monetary policy stance, potentially exiting the current "sufficiently restrictive" approach. This, in turn, could elevate expectations for additional rate cuts in 2024.

Potential Implications:
While a more accommodative policy might benefit consumers and homeowners, it could introduce a downside for the Pound. Lower interest rates often deter foreign capital inflows, impacting the currency's strength. The release of the CPI data is poised to be a decisive factor, providing clarity on the trajectory of headline and core inflation in November.

Investor Expectations:
Investors are anticipating a decline in both headline and core inflation, influenced by higher interest rates that have tempered household spending on core goods. Additionally, prices of goods at factory gates are expected to contract due to subdued demand in the domestic and international markets.

Forward Outlook:
The forthcoming CPI data will play a pivotal role in shaping the GBP/USD's future trajectory. The market is eagerly awaiting the results to ascertain whether the currency pair will sustain its bullish momentum, adhering to the Typical Swing pattern identified in our previous analysis, or if a range-bound scenario will emerge.

In conclusion, the GBP/USD's strategic pullback within the Fibonacci retracement zones sets the stage for a crucial period ahead. Traders are cautiously optimistic about a continuation of the long setup, with the impending CPI data acting as the catalyst for potential market shifts.