GBP/USD Analysis Today 29/5: Mid-Uptrend Consolidation

(MENAFN- Daily Forex)

• GBP/USD is consolidating in a mid-uptrend this week, with gains extending to the 1.2800 resistance level, the highest in two months, before settling around 1.2760 at the time of writing.
• According to the economic calendar, there are no major reports from the UK today, leaving GBP vulnerable to selling against the dollar, which has been supported by stronger-than-expected consumer confidence data.

The US Federal Reserve's Beige Book will be released next, and the performance of the Fed's regions is likely to influence the economic and policy outlook. The improvements could confirm the central bank' s preference to keep borrowing costs higher for longer, which could mean more upside for the US currency. Weak results could revive expectations for three interest rate cuts this year.

On Thursday, the preliminary US GDP report will be released and may have a stronger impact on the US dollar price trends.

According to forex market trading, GBP has generally held its ground in global markets, with the GBP/EUR (GBP/EUR) exchange rate again testing the key resistance zone around 1.1765 without being able to break through. According to licensed trading platforms, GBP will gain new momentum if the GBP/USD pair can break above 1.28, especially if GBP/EUR moves above 1.1765.

There were no major domestic developments today as stock markets fell, with the FTSE 100 down 0.9%. Weaker stock markets tend to be a headwind for GBP.

According to the economic calendar, US consumer confidence rebounded to 102.0 for May from a revised 97.5 the previous month and above consensus expectations of 96.0. The further decline this month could have been the lowest reading since July 2022. The current conditions index rose to 143.1 from 140.6 in April, while the expectations component improved strongly to 74.6 from 68.8, although this remains in recession territory.

On the other hand, according to Dana M. Peterson, chief economist at The Conference Board,“Confidence improved in May after three consecutive months of decline. Consumers' assessment of current business conditions was slightly less positive than last month.“However, the strong labor market continued to reinforce it.” Overall, the data will provide some reassurance about near-term consumer spending trends, although there remains an important element of uncertainty. For its part, ING Bank commented:“The big question for domestic demand in the United States is whether spending by the top 20% of households in terms of income can continue to compensate for the struggles faced by the bottom 60% of households. Furthermore, ING Bank's call is that higher interest rates will eventually weigh on consumption and weigh on growth in the US during the year. Besides, there will be ongoing discussion of the broader economy, inflation, and interest rates.

MUFG notes that there has been significant debate about the potential neutral rate for interest rates. Consequently, this will have an important impact on the implications for shorter-term interest rates.

If the natural rate rises, it will make it difficult for the Fed to cut rates significantly. Accordingly, US data will continue to be closely monitored. In this regard, MUFG commented: "This growing discussion around the implied neutral policy stance could have an increasing impact on pushing up market yields if the economy fails to slow down. Moreover, it has been in the early days since the FOMC minutes highlighted the debate around the restrictive policy stance that markets may now be more sensitive to incoming data that is stronger than expected – such as the PMI data released last week that did not tend to move markets much."

ING Bank pointed out the importance of the US economy to global markets. At the heart of this story, investors are once again preparing for a soft landing in the United States. Central to this is the release of core PCE inflation data for April on Friday. After taking inputs from the already released US CPI and PPI numbers for April, the consensus now expects Friday's number to come in at 0.2% m/m. clearly, such an outcome could rebuild expectations for a rate cut by the Fed in September (now priced at 44% probability) and hold the dollar lower.

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Technical forecasts for the GBP/USD pair today:

Based on recent trades, the GBP/USD price has been forming higher lows and higher highs connected by an ascending channel on the hourly chart, and the price is currently in a correction phase. Meanwhile, the Fibonacci retracemen tool shows that the 50% level aligns with the channel support around the secondary psychological mark at 1.2750, in addition to the dynamic inflection point of the 100 SMA. The 100 SMA is above the 200 SMA, indicating that the stronger path is the upward trend or that the uptrend is likely to resume rather than reverse.

Therefore, a larger correction could reach the 61.8% Fibonacci level at 1.2723, near the dynamic support of the 200 SMA, which may serve as the threshold for the bullish pullback. In other words, a break below this level could mean that a reversal is in place. The Stochastic indicator is heading downwards, showing some remaining bearish pressure, but it is also moving into the oversold area, indicating seller exhaustion. In the meantime, the RSI has a chance to drop before reaching the oversold area, so the correction may continue until that happens.

A rise would confirm that buyers are returning, potentially pushing the GBP/USD price back up to the recent high near 1.2800 and the top of the channel.

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