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This currency pair has been trading quietly over recent days, seemingly consolidating not far from the middle of its long-term price range. Zooming out, it is easy to conclude that this currency pair is not doing much and looks unlikely to start doing much. However, what we are seeing now is likely to be a deceptive calm, as there are very important data releases due this week for both the US Dollar and the British Pound, which is likely to inject liquidity and volatility into the market. The GBP/USD currency pair does not always have the strongest market liquidity and so in an active market, it can be prone to strong directional price movements.
The reason for the potentially approaching storm is the slew of high-impact data which we have scheduled for the rest of this week. On Wednesday we will see the release of UK CPI (inflation) data and the Federal Reserve Policy Meeting, while on the following day (Thursday), the Bank of England will be holding a policy meeting. With both currencies having central bank meetings, there is potential here for this pair to be in strong focus and subject to a serious shift in its price regime.
Another thing worth noting: although a zoomed-out price chart looks like a nondescript consolidation prevails, drilling down to shorter time frames clearly shows a bearish imprint on the price action as the price gets very close to a key technical level. These can be pivotal moments for a currency pair.
GBP/USD Price Action Shows Pressure Building Near 1.3500
Although longer-term charts look consolidative, we can see zooming in to the hourly chart below that the price has clearly made another short-term trend change, this time from bullish to bearish, as evidenced by a third and descending linear regression analysis study which effectively contains the recent price action. If I drew the trend lines by hand, they would be parallel and symmetrical, and that is the key indicator of how technically significant a price channel is likely to be on the future movement of the price.
Not only do we have a bearish price channel which is pushing the price action lower, the price action – with all the recent tops and upper wicks, and lower highs – looks bearish anyway. Note the recent bearish double top at 1.3533. The bearishness is pressing down on the key support level at 1.3491 which is obviously supportively confluent with the big round number at 1.3500. The action is heavy, which suggests that a bearish breakdown below this zone is approaching. However, it seems that this will probably not happen before all the high-impact data we will get this Wednesday and Thursday, and that could give us an advantage if the price enters the zone between 1.3491 and 1.3500, as it will be likely to hold. The resistance overhead at 1.3533 also looks clear and strong after flipping from support to become resistance, so I think this level could hold today also – if not that, then 1.3570 which has also been strong, although that is not such an obviously “clean” level.
GBP/USD H1 Price Chart Showing Heavy Consolidation Above 1.3500
UK CPI, Fed and BoE Events Could Test the Technical Setup
I find it very difficult to see what might cause my anticipated scenario of limited volatility in this currency pair today to be incorrect, as it is a Monday without any major releases due for either currency, ahead of very key data later in the week. What I am more likely to be wrong about is seeing the 1.3500 as a pivotal level that will be a good indicator once it is broken or otherwise holds. It does look like it is going to be influential, but with two central banks reporting and inflation data all coming within two days, the price action is lliable to get messy and to stop respecting key levels. However, that is likely to happen later in the week, not today or even tomorrow.
A Sustained Bounce From 1.3500 Could Challenge the Bearish View
At what point does the outlook become bullish? This is going to be very challenging to monitor technically, because it will depend more open the two central banks and the UK CPI data release than whether the price temporarily breaks below or above a certain level. Having said that, with the price action having looked heavy on the support confluent with 1.3500 over a period of some days, if this area continues to hold and produces a strong bullish bounce after at least one of the major data releases due later this week, that could be a sign that the price is going to take off again.
For now, GBP/USD remains caught between a short-term bearish bias and support near 1.3500 that has yet to give way. The more important question may be how the market behaves after UK inflation, the Federal Reserve decision, and the Bank of England meeting provide fresh direction. Whether the support zone continues to absorb selling or begins to weaken could reveal more about the pair’s next phase than Monday’s quiet trading is likely to show.
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