GBP/USD is currently around 1.3155. This seems to play into the long term devaluation trend of the Pound Sterling versus the US Dollar. This reversal comes after a time in which the CAD/USD currency pair blew through key support lines, dropping to six-month lows around the 1.3115-level. Technical perspective The short-term setup of GBP/USD is bearish. The currency pair is currently trading below all the major moving averages, a clear indication that sellers are in control of this market.
Even more so, though, external factors are making this situation even worse. Moreover, optimism about a potential US-China trade deal is furthering the upward push on the USD, adding to the downward pressure on GBP/USD. Traders continue to play it safe as key economic reports from the U.S. prepare to drop. Three significant developments might soon have a major effect on market sentiment.
Current Market Conditions
GBP/USD recently traded at about 1.3155. This position puts below all of the major moving averages, demonstrating a deep strong bearish market trend. The 200-day Simple Moving Average (SMA) is creeping up to offer resistance. It continues to be located above the price, limiting upside potential. Upward pressure points to the idea that unless GBP/USD can break through key resistance levels, the trend could remain in play.
Relative Strength Index (RSI) for GBP/USD has reached 30.4. This zone indicates that the currency pair is potentially going into an oversold area. Traders frequently use the RSI indicator to find signals on possible reversal or continuation trends. A massive resistance break above 1.3248 will prove selling pressure. A realization of this move would open up potential retesting to the 21-day and 50-day SMAs.
These positive indicators have done little to temper the bearish sentiment. The 21-day SMA has now fallen below the longer 50 and 100 SMAs. This shift is a clear sign that sellers still control the market’s fundamental forces. Resistance is strong at 1.3248 (200-day SMA), 1.3345 (21-day SMA), 1.3434 (50-day SMA), and 1.3464 (100-day SMA).
Economic Influences
The vigorous developments in the US in recent weeks have supercharged the GBP/USD trading landscape with multiple layers of complexity. As the US Senate adjourned without any clear path forward on government funding, the government shutdown heads into its 34th day. This extended period of uncertainty is likely to add to volatility in the financial markets as traders gauge effects on the medium-term economic performance.
In addition, focus shifts to next week’s wave of economic data releases which may help set the tone for market sentiment. The monthly private employment data from Automatic Data Processing (ADP) will be closely scrutinized to gauge the health of the US labor market and its implications for future Federal Reserve actions. Additionally, the ISM Services PMI report scheduled for Wednesday will provide further insights into economic conditions and may sway trader sentiment.
Underlying this boost to the USD though, is a recovering optimism over a potential resolution to the US-China trade dispute. This provocation is further steepening GBP/USD’s plummet. As these outside factors continue to complicate the picture with domestic economic indicators, traders are on guard for signals that can change the prevailing momentum.
The Role of Central Banks
The Bank of England (BoE) will come under the spotlight at its next ‘Super Thursday’ meeting. It is likely to establish the next major direction for GBP/USD. Shifting expectations Market participants are already clamoring for clues about the Fed’s monetary policy trajectory. This promise is especially welcome in light of the UK’s recent bout of economic turmoil.
The BoE’s decisions regarding interest rates and quantitative easing could significantly impact market perceptions and trader behavior in the context of GBP/USD. As a result, inflationary pressures and worries about economic growth seem to still hang expensive in the air. Central bank communications will be paramount to establish expectations for these domestic and international investors.
As Forex traders prepare for this important FOMC meeting, they see early support developing for GBP/USD near the 1.3140 level. Just underneath that, important support lies at 1.3116, constituting the bottom since the middle of April. As market dynamics unfold in the run up to, and after, the BoE’s announcements, these levels will be worth keeping a close eye on.