GBP/USD Bulls Threatened by Technical Breakdown: Key Levels to Watch

investing.com:

Thanks to the Martin Luther King Day holiday, FX markets were quiet-ish on Monday without the participation of US banks.

But volatility has started to pick up with reduced Fed rate cut bets boosting US dollar across the board in the early European session on Tuesday.

We are going to have some potentially market-moving macro data from around the world to look forward to later this week.

Among these macro pointers, we will have some important UK data too, including CPI and retail sales, making the GBP/USD the currency pair of the week.

On Tuesday, during the European session, the GBP/USD was about 70 pips worse off, dropping below 1.2650.

Sterling was hurt by UK data showing earnings grew at a less-than-expected annual pace of 6.5% in the three months to November.

As well as weaker UK earnings data reduced Fed rate cut bets were helping to boost the US dollar across the board.

FX traders are expecting officials from the FOMC to push back against March rate cut expectations more forcefully after both CPI and jobs data for December were stronger.

Until Tuesday’s drop, concerns over the UK economy had been mostly ignored by FX traders.

They had been happy to buy the GBP dips against all major currencies, especially the underperforming commodity dollars. But even against the US dollar, the pound has been able to hold up well.

The GBP/USD has spent several weeks consolidating its sharp gains made at the back end of last year, holding just below the 1.28 resistance level for the most part.

Let’s see if Tuesday’s drop will mark the end of that bullish trend or is going to be yet another trap for the bears.

The reason why the pound has remained supported despite macro worries in the UK is the fact that the Bank of England has