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GBP/USD Forecast: Muted reaction to Fed, Eyes UK GDP

GBPUSD

The GBP/USD pair fell on Wednesday ahead of the Fed and remained weak despite dovish hints from the Fed. Sterling’s weakness may be due to speculation that the Fed may end up holding rates unchanged for the rest of the year and hence the BOE too would let go its plans to raise rates in 2016. Anyways there are few in the markets now, who believe a BOE rate hike could happen in 2016. Hence, the dud reaction in GBP/USD following a slightly dovish Fed statement is surprising. As of now, the pair is trading around 1.4245 levels.

Eyes UK GDP

The preliminary Q4 GDP is seen slowing to 1.9% y/y from 2.1%. Quarter-on-quarter number is seen rising to 0.5% from 0.4%. Given the weak spending and service sector activity data in the last three months the actual GDP figure could drop more than expected. However, Sterling may not suffer sharp losses on a weaker-than-expected GDP since the slowdown is already well know and priced-in.

Technicals – strong support at 1.4210

  • Sterling’s drop from 1.4355 to the falling channel support caught many by surprise, but still the currency has maintained the rising bottom formation (rising trend line) seen on the hourly chart.
  • An immediate support is seen at 1.4237 (rising trend line), which if breached could see the pair re-test 1.4210-1.42 (falling channel support).
  • Only an hourly close below 1.42 would mean the corrective rally is done and the pair is heading back to 1.4079.
  • However, the odds of a bullish move back to 1.43-1.4390 are high, given the inverted head and shoulder and the rising bottom formation on the hourly.

EUR/USD Analysis: Weak EZ CPI could hurt EUR

EURUSD

The EUR/USD pair remains stuck in the range of 1.0750-1.0950 range despite dovish hints from the FOMC statement released yesterday. The risk-off mood in the equities continues to protect the downside, while the dovish ECB ensures the buying interest is not strong enough to chew through offers around 1.0950-1.10. The pair is trading moderately weak around 1.0878 levels today.

The Eurozone preliminary inflation figures for January are due for release later today. Harmonized Index of Consumer Prices (HICP) is expected to come-in at -1.0%. Inflation had stalled in the previous month. The HICP is more sensitive to slide in oil; hence a negative print will not be a surprise. Still, that would enough to underscore the need to do more by the ECB and could push the EUR lower.

Technicals – Awaits breakout

  • Euro awaits breakout from the 200-pip range of 1.0750-1.0950.
  • Failure to sustain above 1.0890 (38.2% of 1.1495-1.0517) could result in a drop to 1.0832 (falling channel support).
  • On the other hand, a break above the daily high of 1.0907 could see the pair re-test 1.0950 levels.

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