Key Points
- DXY bulls eyeing 106.500.
- GBPUSD recovers from yearly lows but remains under pressure.
- US GDP figures are expected to show a slowdown in growth.
- Can the Core PCE Price Index cause welcome inflation relief?
Market Overview
It has been a fantastic start to the year for the Dollar bulls, with the DXY up nearly 5% this year. There have been hints of 2022 themes coming to life as the markets have been rightly concerned over the higher inflation prints and have continuously seen pushback from the Federal Reserve when it comes to any rate cuts in the near future.
As for the UK, the pound has also performed well relative to most of the major counter currencies, except for the Dollar. Major concerns still remain about the UK’s economic growth from here and anticipations of a rate cut.
Key Events
There are two key events to watch out for this week that will have a direct impact on the Major FX pairs, including GBPUSD. The first is the quarterly gross domestic product figures for the US today. The US economy is expected to have grown by 2.5% in the first quarter of 2024. However, this would be slower growth than the previous two quarters, so the market reaction here will be fascinating.
Friday’s Core PCE Price Index data, the Federal Reserve’s primary gauge of inflation, is also to contend with. Only a few months ago, figures such as 0.1% and 0.2% were seen, but now the trend sits somewhere between 0.3% and 0.4%. Traders will be looking for a softer reading to provide some welcome relief to the stock market and likely cause a deeper retracement in the dollar. However, another print above or equal to 0.4% is likely to confirm that this inflation story is nowhere near done.
DXY Bulls Eye 106.500
The dollar’s performance shows the hawkish comments coming from various FOMC members. Market sentiment has been clinging to the fact the Federal Reserve will cut rates as early as the summer. However, market expectations have kept getting pushed back, and the dollar has remained bullish.
The chart above shows a Fair Value Gap created around 106.500 in November 2023. The market created its next higher high here, and although there has been a reaction, it is fairly low volume at the moment. The floor of this market sits at the 104.200 order block and would require significantly weaker data this week to see a move down there. The bulls will be lining up the rest of the FVG that has yet to be filled.
GBP/USD Remains Under Pressure
As for GBPUSD, the comeback has been strong, but it still remains under pressure. 1.25500 is a hugely important level, as there is an order block sitting there where resistance could be found. However, if the price breaks above this level, there isn’t too much stopping the price trading into the vacant Fair Value Gap and up into a strong order block at 1.26740. This could be considered the ceiling of the market.
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Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
