Whats the Probability of an End of Week S&P 500 or GBPUSD Break
Whether it is the S&P 500 or GBPUSD, it is important to understand the probability of an end of week break. This is particularly true in the case of the British Pound. Hedge funds have shifted to selling the pound and are betting on a further fall. In the last half a year, the pound has depreciated by more than 8% against the dollar. However, the pound has managed to reverse this trend and is currently trading above its September lows.
This has not changed the underlying long-term bearish trend. But it does allow the market to get closer to a breakout. A break above 1.2500 could occur by the middle of December. If the interest rate cycle in the US reaches its peak, the pound will be able to hold on to its highs.
The S&P 500 and the GBPUSD are still in a bullish rally, but there are still several headwinds facing the pair. One of the main problems is the fact that the British Pound is now overextended. It has bounced off its 200-day moving average, but is still holding near key levels.
It is possible that the next few days will be marked by an abundance of volatility. While it is true that the market is pricing in a softer approach by the Bank of England than the Fed, this has not halted investors’ appetite for risk. Some analysts continue to see the potential for more gains in the short term. In the meantime, the pound is a very volatile currency and will remain that way for some time.
The US dollar, meanwhile, is losing ground against a basket of major currencies. The US Dollar index has fallen by 9% since its September peak. It has also failed to break back above its 200-day moving average.
In the UK, the pound has been hit hard by shocking inflation data. The Consumer Price Index (CPI) ran at 9% in April, which is above the Bank of England’s target of 2%. This may not be the most obvious macro catalyst, but it does raise questions about the direction of the pound’s future.
On Wednesday, Fed Chair Jerome Powell will speak. His comments will likely help keep the pound supported. He can reaffirm the Fed’s commitment to inflation and may even suggest that the Fed isn’t done with the job yet.
The US will publish non-farm payrolls on Friday and GDP on Wednesday. These two data sets will provide the backdrop for the week’s action. Then, next week will bring inflation data from both the UK and the US. These data sets can help determine the fate of the pound.
After a week that was relatively subdued, investors are starting to look ahead to the Fed’s interest rate decision next week. The Fed is widely expected to raise interest rates by 50 bp. If this happens, the pound will have a lot to defend.
In the meantime, GBP/USD is showing signs of weakness around the 1.20 and 1.2300 level. These are key levels that have acted as resistance in the past. In the event that the pair breaks through 1.2300, it may be able to retest its lows.