The GBP/USD pair jumped to 1.4241 in Europe on Wednesday before falling back to around 1.4180 in early US session. Another wave of buying was seen in the NY session following a rally in oil. However, the momentum stalled again as the spot neared 1.4241 levels. The pair dipped to around 1.42 levels in Asia as investors await the ECB rate decision due later today.
The data released in the UK yesterday did show factory output bounced back strongly in January, marking the sector's first rise in activity for four months. However, this was priced-in somewhat on February 1, when an upbeat PMI manufacturing had hit the wires.
ECB rate review is the main event today
The main event today is the European Central Bank rate decision today. The detail report on the ECB rate decision and EUR pairs could be found here (ECB Meeting Forecast) and here (Macro Scan). It would be interesting to see if Draghi pushes the dovish button hard enough or under delivers again. In either cases, there is likely to be a sharp reaction in the EUR/GBP cross and that would influence GBP/USD pair.
Furthermore, whatever ECB does today is shall also influence expectations surrounding BOE’s next move. It would not be surprising to see BOE rate cut probability rise if Draghi over delivers today.
Technicals – Established 63-pip range
The hourly chart shows the pair has established a 63-pip range of 1.4178 (also 23.6% of 1.3835-1.4284) to 1.4241.
A bullish break signals a possible rally to 1.4304, while a bearish break points to a possible drop to 1.4115.
However, the spot could face stiff resistance on the way higher at falling trend line level of 1.4260, which will be followed by a hurdle 1.4284.
A break above 1.4284 would mean continuation of a recovery from the low 1.3835 has resumed and that could take the pair higher to 1.4304-1.4330 (23.6% of 1.5930-1.3835).
On the other hand, only a break below rising trend line support of 1.4167 would add credence to bearish break from 63-pip range and open doors for a slide to 1.4115-1.41 levels.
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