GBP/USD Price Outlook: Cable Bid after the Fed Signals a “Skip” in June

• Cable rises on the Fed’s increased probability of a “skip” at the June FOMC
• Major risk events this week: NFP, US debt ceiling fears dissipate
• GBP/USD technical levels to consider for a bullish continuation

CABLE RISES ON THE FED’S INCREASED PROBABILITY OF A “SKIP” AT THE JUNE FOMC

The dollar’s rise observed throughout most of May has changed course amid increasing support for a ‘skip’ at this month’s FOMC decision. Fed Governors Philip Jefferson and Patrick Harker sent a message to the market yesterday as both permanent voters expressed a preference to skip a potential interest rate hike this month. The option to skip a hike provides the rate setting committee with greater flexibility to hike further down the line or essentially pause hikes depending on the incoming data.

Market implied probabilities of a rate hike this month sat at 71% ahead of the comments yesterday and this morning has reversed, now down at just 42.4%. Such a massive shift in sentiment leaves the dollar vulnerable and opens the door for GBP/USD to claw back recent losses.

MAJOR RISK EVENTS TO END OFF THE WEEK

There was a notable lack of high impact UK economic data this week with the US very much the focus towards the end of the week. After last night’s crucial house vote to suspend the US debt ceiling, attention now turns to the Senate but political commentators suggest that a deal is largely expected to become law from here on out. Away from the political arena, US non-farm payroll data is due on Friday as consensus estimates foresee a lower number of jobs were added in May with a slight uptick in unemployment. The Fed will also keep a keen eye on average hourly earnings as far as it influences general price pressures.

GBP/USD TECHNICAL ANALYSIS AND LEVELS OF INTEREST

Cable has moved above both the 50 SMA and the prior zone of resistance at 1.2445 as the dollar eases. GBP/USD bulls will naturally be eying the swing high of 1.2676 and general zone of resistance around 1.2700. A more immediate benchmark of bullish momentum comes into play at 1.2585.

The RSI trades a little above the middle ground, suggesting that there is more room for upside continuation before the pair enters overbought territory. On the bearish side, if the pair is to move lower from here, 1.2345 and the recent swing low at 1.2308 emerge as most relevant levels of support.

GBP/USD Daily Chart

The weekly chart helps to put shorter-term moves into perspective. Cable remains within the broader longer-term uptrend which adds to the bullish outlook.

GBP/USD Weekly Chart

GBP/USDBULLISH

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CHANGE IN	LONGS	SHORTS	OI
DAILY	-17%	18%	-2%
WEEKLY	-20%	17%	-5%