The GBPUSD currency pair was under threat from a strong US labour report on Friday that reignited the expectations of another rate hike from the Federal Reserve. However, the inflation data poses another hurdle for traders to navigate, with Wednesday’s report now earnestly anticipated.

On Friday, the US reported an increase in Non-Farm Payrolls (NFP) of 236,000, slightly below the 239,000 expectation but enough to convince the market of more rate hikes to come. The CME FedWatch Tool now indicates a 69% probability of a 25bps rate hike, with a 31% expectation of a pause. These expectations shift both economies into restrictive territory, which could keep interest rate differentials at bay. However, the FOMC minutes and inflation data releases due Wednesday could be crucial for the market to confirm their expectations around future central bank reactions.

Technical

The currency pair’s recent uptrend was threatened by a strong labour market report that enticed the bears to start the selloff that broke the structure on Monday. However, caution prevailed as further cues were needed to enforce directional price action. Technical indicators point to neutrality, with the currency pair trading around the 50-day moving average on low volume and a stable RSI.

However, since the currency pair broke above the daily pivot support at $1.2390, the bulls are still recovering from the selloff, retesting the uptrend support at $1.2415. Leading up to the CPI release, the currency pair could reject the support to consolidate between $1.2390 and $1.2415. If a hawkish tone emerges from the reports on Wednesday, the bears could push on toward $1.2349. Conversely, if the bulls continue recovering to break back into the uptrend, a move toward resistance at $1.2429 and $1.2448 is possible. However, the psychological resistance at $1.2448 could need more fundamental backing on higher volumes to enforce a breakout and continue the uptrend.

Summary

Consolidation could be the keyword for the GBPUSD currency pair in the trading session leading up to the inflation and FOMC minute releases. A strong inflation report on hawkish FOMC minutes could entice the bears to push further down toward $1.2349. Conversely, dovish signs could aid the bulls in attempting a psychological breakthrough of $1.2448.

Sources: Koyfin, Tradingview, Reuters, CME Group