GBP/USD Outlook: Bulls likely to retain control ahead of this week’s BoE meeting and NFP

The GBP/USD pair witnessed good two-way price moves on Friday and the intraday volatility was sponsored by the US dollar price dynamics amid some quarter-end position-squaring. The USD initially rose in reaction to the stronger US Personal Consumption Expenditures (PCE) price index, which accelerated to 6.8% YoY in June - the largest increase since January 1982. Excluding the volatile food and energy components, the core PCE price index - the Fed's preferred inflation gauge - shot up 0.6% and edged higher to the 4.8% YoY rate. The data reinforced bets that the Fed would stick to its policy tightening path as it deems necessary. This, in turn, provided a goodish lift to the greenback and exerted heavy downward pressure on the major.

The USD uptick, however, fizzled out quickly after the final University of Michigan report revealed that inflation expectations slipped to 5.2% in July. Furthermore, the Chicago PMI dropped to a 23-month low of 52.1 in July, which revived concerns about recession and overshadowed inflation worries. It is worth recalling that the Advance US GDP report released last Thursday showed that the world's largest economy contracted again in the second quarter and confirmed a technical recession. Apart from this, a less hawkish FOMC decision last Wednesday fueled speculations that the Fed would not raise rates as aggressively as previously estimated. This, in turn, acted as a headwind for the buck and offered support to the GBP/USD pair.

Spot prices finally settled nearly unchanged for the day and gained some follow-through traction during the Asian session on Monday. The USD languished near a three-and-half-week low. This, along with rising bets for a 50 bps rate hike by the Bank of England, underpinned the British pound and offered support to the GBP/USD pair. Hence, the focus now shifts to the upcoming BoE monetary policy meeting on Thursday. Apart from this, a slew of important US macro data scheduled at the start of a new month would be looked upon for a fresh directional impetus. A packed US economic docket kicks off with the release of the ISM Manufacturing PMI on Monday, though the highlight would be the monthly jobs report (NFP) on Friday.

Technical Outlook

From a technical perspective, Friday's intraday downfall stalled near an ascending trend-line extending from the YTD low touched in July. The mentioned support, currently around the 1.2075 region, coincides with the 200-period SMA on the 4-hour chart and should act as a pivotal point. In the meantime, the 1.2145 area could protect the immediate downside ahead of the 1.2100 round-figure mark. A convincing break through the aforementioned trend-line support, meanwhile, would suggest that the recent bounce from the lowest level since March 2020 has run its course. This, in turn, would shift the bias in favour of bearish traders and pave the way for a slide back towards challenging the 1.2000 psychological mark.

On the flip side, bulls might now wait for sustained strength beyond the 1.2200 mark before placing fresh bets. The next relevant hurdle is pegged near Friday's swing high, around the 1.2245 region, above which the GBP/USD pair seems all set to reclaim the 1.2300 round figure. The momentum could further get extended towards the 1.2325 supply zone, which if cleared decisively would be seen as a fresh trigger for bullish traders.