GBP/USD continues to hold in the trading range established on August 22. Third, it is displaying considerable sensitivity to shifts in the US dollar’s dynamics. Market participants are looking ahead to the release of the Federal Reserve’s favorite inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index. At the same time, the currency pair remains severely challenged technically. The week ahead promises to be a big one for GBP/USD traders, as the market continues to tread water in a consolidation phase after the massive directional move.
Additionally, the 14-day Relative Strength Index (RSI) for GBP/USD is just above the midline, which could pose a threat to buyers. The daily GBPUSD chart obviously displays a double top reversal. This downside reversal found a bottom just above the convergence of the 21-day and 100-day Simple Moving Averages around the 1.3420 mark. Gesturing at the obvious, bullish commitments are running into headwinds. The duo are trying hard to hold above key support levels.
Technical Setup and Market Dynamics
Just last week, GBP/USD climbed back above the important 1.3500 level, marking a change in momentum for the pair. What traders have been playing at has been the clear next major upside barrier found at the double top high around 1.3590. Technical signals suggest a strong break under the confluence area of the 21-day and 100-day SMAs, presently near 1.3450, would initiate a new downtrend for GBP/USD. This decrease may send the pair all the way to the 1.3300 psychological level.
An even deeper drop may challenge the 1.3254 low from August 4, renewing worries about the pair’s short-term direction. Our daily chart illustrates how GBP/USD is in a consolidative phase following a late-blast last week. It hasn’t gathered a lot of wind in its sails because all of the recent data releases failed to create a dramatic reaction from the market.
The bull-bear tug-of-war continued, but bargain-buying was still in fashion, thanks to a general US Dollar pullback for GBP/USD.- Market Analysts
Upcoming Economic Indicators
Looking ahead, the spotlight turns to the next batch of US employment data, which, like last month, should drive GBP/USD trading the most. Analysts predict that if economic indicators suggest weakness in the labor market or inflation pressures ease, it may influence Federal Reserve policymakers’ decisions on interest rates.
New York Fed President John Williams commented on the current economic climate, noting that “it is likely interest rates can fall at some point but policymakers will need to see what upcoming data indicate about the economy to decide if it’s appropriate to make a cut next month.” This declaration brings home the point that new economic data will play a critical role in monetary policy going forward.
Furthermore, Fed Governor Christopher Waller expressed his view on potential rate cuts, stating that “would support a rate cut in the September meeting and further reductions over the next three to six months to prevent the labor market from collapsing.” These types of remarks are indicative of a quickly rising tide among policymakers seeking to take proactive steps in order to ensure long-term economic prosperity.
Market Sentiment and Future Prospects
As traders process all of these developments, bullish vs. bearish sentiment in the market seems split. Buying the pound cheap has supported the GBP/USD. Persistently hawkish signals from US monetary policy makers and upcoming inflation data weighed down the currency pair. Buyers need to regain acceptance over the 50-day SMA at 1.3496. This step is essential if we want to collectively build enough momentum for enduring upward change.
If GBP/USD is able to clear these key technical barriers, buyers will step in. For that, they’ll be looking at more significant resistance levels, such as the July 4 high of 1.3681 and the July 1 high of 1.3788. That dynamics between these technical levels and the new economic data in the near term will determine GBP/USD’s direction.